Unlocking Africa's Informal Economy: Hidden Growth Opportunities | Niti Bhan

The informal economy creates a difficult problem: banks struggle to underwrite risk properly because many people have no formal accounts or stable financial histories. Fintech is changing this equation. TN Cyber Investments Holdings reported disbursements of 10 million in just 10 months to December 2025, proving that informal lending at scale is actually quite possible. However, this creates new risks, and the RBZ has directed mobile network operators to screen mobile wallets for ghost accounts by June 30, 2026, ensuring non-loans are properly written through registered banking institutions.

Mobile wallets exist as two distinct forms: traditional wallets holding multiple payment instruments, and stored value accounts accessible through basic devices for emerging markets. Citigroup partnered with America Mobile ($50M joint venture) to deploy mobile wallets across 18 Latin American markets, targeting 35M unbanked customers. Research shows mobile-only MFIs achieve 50% cost reductions and 5-8x distribution network expansion compared to agent-based models. However, mobile-only approaches sacrifice face-to-face relationship-building, requiring compensatory measures like SMS check-ins for default prevention. M-Pesa research demonstrates transformative impact: 75% of previously unbanked populations adopted the service by 2011. Success requires context-specific approaches—M-Pesa succeeded in Kenya due to internal remittance patterns, while Tanzania required rebranding.

Mobile money platforms scale through continuous product innovation and strategic platform expansion. Early-stage platforms focus on solving specific problems (like remittances) before expanding into broader financial services. Scaling requires evolving from single-product offerings to comprehensive digital ecosystems covering payments, savings, lending, and wealth management. Platform success depends on open API architectures that enable third-party innovation, developer communities, and strategic partnerships. The evolution from operational management to enterprise-wide coordination represents a critical leadership transition point during scaling.

Mobile money rapidly transforms informal financial systems in underserved markets. Before Wave entered, people relied on inefficient methods: taking money home (losing wages), friends/family, or hundi/hawala systems. By August 2018, just two years after launch, informal channel usage had dropped dramatically: taking money home fell from 16% to 3%, friends/family from 13% to 5.6%, and hundi from 6% to 2%—a nearly two-thirds reduction. Mobile money adoption grew from 0.8% to nearly 40% of users. Wave achieved 656% year-over-year revenue growth and 887% transaction growth, processing $900M+ in transfers, demonstrating how mobile money can formalize financial transactions and capture significant market share quickly.

Fintech startups can address financial inclusion gaps by targeting underserved micro-SMEs and informal traders who are often neglected by traditional financial institutions, using mobile technology to provide essential services like transaction tracking and capital access while leveraging existing smartphone adoption and mobile money infrastructure.

Both Latin America and Southeast Asia have strong informal economies with street vendors and small businesses operating without formal permits. In contrast, many developed countries require formal business licenses and strict regulations for street vendors. This informal economy allows people to start businesses with minimal capital, such as borrowing money to buy supplies and equipment.

This segment presents comprehensive analysis of the informal economy across Latin America. Informality rates are provided: Bolivia (80%), Peru (73%), Ecuador (68%), Paraguay (62%), Mexico (over 60%), El Salvador (36%), Uruguay (22%), and Spain (15%). The consequences include lack of social security, vulnerability to extortion, and elderly workers without pensions. The segment explains how informality creates conditions favorable for organized crime, with gangs controlling hundreds of millions through extortion in Guatemala, Honduras, and El Salvador. The 'cobro de piso' system in Mexico and the 'feria de la salada' in Argentina are cited as examples of parallel states. The speaker argues that where there is no state presence, criminal organizations fill the vacuum, demonstrating the direct relationship between lack of state presence and criminal control over economic spaces.

Latin America has the fastest-growing informal economy in the world. According to the International Labour Organization, more than half of the workforce in Brazil and Peru is employed informally, while in Bolivia this proportion reaches 82%. This informality significantly impacts economic productivity and development.

Informality is a characteristic feature of developing and emerging economies. In Latin America, approximately 70% of the labor market is informal, including Peru. In Africa, many countries also exhibit high levels of informality. Globally, 61% of the world's population lives in informal employment, with 70% in developing and emerging countries. In the Americas, approximately 54% of employment is informal. This widespread presence means that economic models and policy analysis for these countries must necessarily consider informality.

Informality in Latin America stems from a productivity gap between formal and informal sectors. Small and medium enterprises (50-100 workers) face the greatest challenge: too small for formal compliance costs but too large for informal tax regimes. This creates a 'valley of death' where enterprises cannot survive. Solutions require: (1) reducing formalization costs, (2) increasing productivity through technology adoption, and (3) improving education to prepare workers for modern labor markets. The region must address these structural barriers to achieve sustainable economic transformation.

Municipal governments implement urban planning policies that centralize informal market vendors in designated areas. In this case, the city government consolidated all informal vendors into a single location through the Municipal Industry and Commerce Secretariat (SMIC). This policy aims to organize informal commerce, improve market conditions, and facilitate regulation. The government invested 10 billion reais in developing a camelô market with 800 spaces for vendors, with rental fees ranging from 300 to 400 reais monthly. This formalization process represents an attempt to bring informal commerce into the formal economic system while providing vendors with more stable working conditions and legal recognition.

Effective urban planning must accommodate informal elements like street vendors and paratransit services rather than eliminating them. Government policies allow vending in designated zones. Informal activities naturally concentrate at transportation nodes requiring special planning attention. Solutions include providing four-quadrant spaces at road junctions for bus stops, paratransit services, footpaths, and small shops. Service roads connect these areas without compromising major arterial road flow. This approach prevents uncontrolled proliferation while achieving maximum benefit with minimal land area, ensuring sustainable and orderly urban development.

Effective policy for informal economies requires balancing multiple competing rights and interests. The proposed framework includes: (1) recognizing that municipal authorities can regulate but not prohibit street vending, with prohibition power reserved for national Congress; (2) providing vendors with training, access to productive projects, and designated selling spaces; (3) facilitating transition to formal economic status; (4) reducing public space disorder; (5) combating criminal exploitation; and (6) protecting vulnerable populations' rights. This approach aligns with court rulings that recognize informal workers' legitimate rights while maintaining public order.

National urban policy addresses informal settlements through dual strategies: incentivizing formalization of existing informal settlements while simultaneously promoting production of habitable land in safe, serviced zones. This approach recognizes both the need to regularize existing informal areas and prevent new informal occupation through adequate supply of formal development opportunities.

Urban planning must fundamentally reorient its understanding of public space from recreational/circulation infrastructure to livelihood infrastructure. Current master plans categorize open space primarily under green space or circulation categories, failing to recognize how informal workers use public space for economic activities. A livelihood-centered approach would recognize public space as welcoming certain forms of informal work. Streets should be redesigned as multi-use zones enabling vending, non-motorized transport, and cycling. Natural markets represent existing spatial patterns that workers themselves identify as viable locations, suggesting planners should learn from existing practices rather than imposing top-down decisions. The key challenge is balancing formalization—finding regulatory balance that protects vulnerability while acknowledging flexibility—that preserves worker self-organization capabilities while reducing exposure to exploitation. Global solidarity and cross-city learning among informal worker organizations provide valuable models for advocacy, demonstrating that effective integration requires statutory spaces for worker organizations in governance, worker-led articulation of proposals based on lived experience, demonstration of value creation for broader communities, and permanent institutional roles for worker organizations in ongoing decision-making.