Tuesday, March 17, 2009

Marketing the informal economy

I was going to start a series of posts on donor marketing, and then I saw this article in the March 14-15th edition of the Wall St. Journal: "The Rise of the Underground," by Patrick Barta.

The article starts:

"Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy."

Yes, and donors have thought so too. How many times have you, as an MFI manager, heard a donor asking how many of your borrowers had moved into the formal economy after taking out a loan? Or government officials demanding that formal licensing be a condition of a loan?

In my opinion, the "problem" with the underground economy is that it doesn't pay taxes (formally) at least to the state. That isn't the fault of the business people within it, however. In my opinion it points to a failure on the part of the state -- to provide clear and understandable ways to formalize one's business, and to make a case that the benefits to registration outweight the advantages of going "informal."

So how should MFIs address this issue when a donor or government official laments about our informal borrowers? This article makes a good case for the informal economy, but I'm curious to hear your thoughts. Let me know in the comments section!

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