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Include informal businesses by finding out what blocks their access to markets, finance, skills, services, and supportive rules—and involving the people affected in designing solutions. Coordinate tailored business support with a viable, rights-respecting path to formality; registration, training, or credit alone is not a complete inclusion strategy.
What “informal business” means—and why the distinction matters
The International Labour Organization (ILO) defines the informal economy as economic activities by workers and economic units that are not covered, or not sufficiently covered, by formal arrangements in law or in practice. Under ILO Recommendation No. 204 (R204), this does not include illicit activities.
The category is broad. It can include own-account operators, employers, cooperatives, and social and solidarity economy units, as well as workers in informal employment relationships—including some working for formal businesses. Informality occurs across sectors and in public and private spaces. A policy should therefore name whom it is meant to serve: a worker, an enterprise, an employment relationship, or more than one of these.
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The ILO’s Inclusive Entrepreneurship Ecosystems Development approach asks whether the ecosystem enables particular entrepreneurs to access the goods and services they need. It puts specific groups—such as women, young people, and refugees—at the forefront and calls for strategies grounded in local incentives and capacities.
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Examine the connected conditions shaping business opportunities, rather than treating each service as a standalone intervention:
- Business and policy environment: Which rules, procedures, or enforcement practices help or hinder the businesses in scope?
- Finance: Are suitable financial services available and practically accessible?
- Business development services: Do support services address the barriers entrepreneurs identify?
- Human capital: Which skills or capabilities matter for the particular businesses and markets involved?
- Entrepreneurial culture: How do local norms and incentives affect who can start, run, and grow a business?
- Markets: Can businesses reach and participate in the markets relevant to them?
Availability is not the same as access. A service may exist but be out of reach because of its cost, documentation requirements, location, language, timing, or a conflicting policy. Diagnose those obstacles before adding a generic course or loan. As the ILO’s ecosystem framework puts it, entrepreneurs’ ability to thrive and create jobs is influenced by “a complex network of interrelated factors”—including the business and policy environment, finance and business development services, human capital, entrepreneurial culture, and functioning markets.
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Build participation into diagnosis and decisions
Consult representative employers’ and workers’ organizations, and include membership-based organizations of informal workers and economic units. At the local level, planning bodies can give informal entrepreneurs and workers a direct role in decisions that affect them. Participation should extend beyond a one-time consultation: involve representatives in diagnosing barriers, shaping policy, implementing measures, and reviewing results.
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Coordinate support with a viable transition to formality
R204 calls for an integrated policy framework and identifies coordination among government bodies and stakeholders as one way to put it into practice. Align enterprise support with employment, social protection, and development policy instead of treating formalization as a registration campaign in isolation.
The transition should support the creation and sustainability of formal enterprises and decent jobs while preventing formal jobs from becoming informalized. R204’s objectives include fundamental rights, income security, livelihoods, and entrepreneurship. Those aims make the quality and consequences of the transition relevant alongside whether a business registers.
Choose measures to fit the local barriers
The OECD’s analysis of Egypt, Iraq, and Jordan describes several policy actions. They are examples from a report focused on the Middle East and North Africa (MENA), not a universal package to apply unchanged.
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| Policy action | What to examine when adapting it |
|---|---|
| Make social insurance more affordable and accessible through cost or procedural changes | Whether eligible workers and businesses can meet the revised costs and requirements. |
| Provide training or wage subsidies, including temporary support for groups such as women and young people | Whether the support addresses a diagnosed constraint and can be reached by the intended participants. |
| Facilitate business registration and access to inclusive financial services | Whether registration procedures and financial-service requirements are practical for the businesses in scope. |
| Promote fairer, more consistent enforcement | Whether enforcement is predictable and aligned with the policy’s objectives and protections. |
For any proposed measure, check its cost, documentation, location, language, and time requirements; whether representatives helped shape it; whether it protects livelihoods and rights; and whether relevant business, registration, labour, finance, and social protection bodies coordinate. Adapt the measure when it fails to improve access or protection.
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Review outcomes with the people affected
R204 calls for regular review of policy effectiveness in consultation with representative organizations. Track whether intended participants can access services, and examine enterprise and worker outcomes, protection, and job quality—not only registration counts. Ask participants whether the support addresses the constraints identified and use their feedback to revise it.
The evidence base has limits worth keeping in view. The ILO’s Small Matters report draws on household, labour, and other statistical surveys conducted in 99 countries between 2009 and 2018; that figure describes the report’s country coverage, not the current share of employment in informal businesses. The cited policy guidance supports the principles above, but does not establish which intervention has the strongest causal effect across countries.
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