Why Your Good Business is Informal

For starters, the informal sector is potentially the largest ‘employer’ in Kenya today. Its contribution to national income is very large despite there being very little accounting for it. However, by being informal, then there is very little support that goes to the sector from government. Not even the basic amenities. Ever wanted to use the toilet you take your car to Nyayo or Makaburini for repairs. Anyway, I usually pick issues with whoever decided to call it ‘Jua Kali”, it carries negative connotation to such an important sector.

How then will you be looked at as an informal business?

1. Registration

Chances are your business will not be registered or incorporated appropriately. You are operating a business which either has no name or its name is not registered with the relevant offices. You operate without a legal status of either being a solo business, partnership or company. You will also likely not have proper addresses including lack of postal address, e-mail, social media or even a phone number. What’s more, you might operate without also a proper physical address and are likely operating in a premise that is not properly constructed and marked or in the open space including in illegally occupied public or private land.

2. Regulatory Licenses

You are probably operating out the regulatory framework and do not therefore have proper licenses to do what you do. You will hardly even have the county trade/business permit or lack NEMA, Health and many other regulator requirements. You neither have insurance for yourself nor your workers. No one seems to have told you how much it is you lose each time you have to close shop to run away from Kanjo or those NEMA people. You haven’t calculated how much bribe you have to give to continue being in biz as opposed to the little amount you would have to pay in fees to get the necessary licences.

3. Associations

You are likely not to belong to any formal business owner association. You will therefore not be enjoying the benefit of advocacy, representation and other capacity building benefits. You then do not have a way to aggregate information that affects you. So you are always caught in surprise when you find your businesses demolished yet there was a notice for the same.

4. Pay Taxes

Your do not pay any taxes either from your income or collect VAT or any other taxes. You are even tempted to think this is really a good thing but maybe not. The small advantage you gain in not paying taxes is easily off-set by being locked out of the real economy and limits your growth chances. Somehow, the information that not all businesses are eligible to pay taxes has never reached you. You therefore are not aware that you can legally avoid to pay taxes and still be compliant

5. Accounting

You probably don’t bother with accounting of any sort of books and records. You hardly have proper receipts, you do not have invoices, delivery notes and probably do not make or deal in any contracts. You do not keep a list of your assets, depreciate them or enjoy the tax benefits allowable in purchase of the same. You probably do not know what you miss by not keeping accounts because somehow no one has ever told you and in any case your biz seems to be doing quite well

6. Technology

Your methods of production are very basic and rudimentary. You hardly employ any technology or machinery rather you depend a lot on sweat and brawn. It is also probable that you do not have proper training and qualification to do what you do but that you learned it by apprenticeship or trial and error. You do not bother with control quality and assurance and wonder how each wheel-barrow you produce seems to be a little different from the other.

6. Employment

Your business probably lacks a defined employment structure. You probably are self-employed without pay and survive by invading whatever the business is able to generate. If you have other employees then you do not have employment contracts for them, no personal files and no job descriptions. You will likely not be paying their NSSF and NHIF for them as required. You will also not have WIBA for them. Now, you will hardly not even have a predictable or consistent workers but rely on vibarua of people who come and go.

7. Work Conditions

You are most likely to give very little regard to working condition including space, pollution and safety. You are very much exposed to and have to battel the vagaries of weather whether it rains or its dizzying hot. You probably have no sanitary arrangements for your staff or customers. You stopped paying attention to the air or noise pollution where you work.

8. Capital

Chances are you do not have a bank account for your biz and neither a pay bill to aggregate your sales. Your biggest problem is then raising capital especially from formal sources. You always have issues convincing your bank to lend you money. You do not have proper collateral to be able to secure the loan you want to borrow.

There is a raging debate on whether those businesses in the informal sector should be brought to the formal one. The debate has pros and cons. My view is that all businesses should strive to come to the formal sector. Policies should be made with both sanctions and incentives to encourage businesses to formalize. That has a ripple effect in the entire economy and how we develop as an economy. Counties need to be empowered to view their informal sectors as potential assets and seek to facilitate their growth and not their demise as currently is.

Public entrepreneurship promotion agencies should also take serious responsibility in helping businesses formalize. Sensitize, Assist, and Sunction accordingly.

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