The Value of (in)formality: A case study of MSEs in Nairobi CBD

October 16th, 2020

Micro and small enterprises (MSEs) make a substantial contribution to livelihoods and inclusive growth in Kenya.

They account for 24% of the country’s gross domestic product (GDP), over 90% of private sector enterprises and 93% of the total labour force in the economy.

Partly due to their informality, however, they continue to face numerous challenges not least of which is their invisibility and neglect by public and private sector. Recent policy initiatives reflect growing interest in MSEs, recognising that creating an enabling environment for MSE growth is a key priority.

To support these efforts, a new study conducted by FSD Kenya and the SME Advisory at the Office of the President examines the drivers of formality and informality to better understand challenges and opportunities to improve MSE growth and resilience. The study was based on a qualitative deep dive of MSEs in Nairobi’s central business district and analysis of quantitative data from the Kenya National Bureau of Statistics (KNBS) Micro, Small and Medium Enterprises (MSMEs) survey conducted in 2016.

The study uses an innovative multidimensional framework for analysing (in)formality– not just in terms of government compliance, but also the type of business premises, relationships with customers, suppliers and labour, use of financial services etc. The study finds that Nairobi’s MSEs are highly diverse and make extensive use of both formal and informal relationships. MSEs choose to formalise or informalise based on a range of factors including the value derived from the relationship, coercion (force), or lack of choice/alternative.


Nairobi Micro and small enterprises (MSEs) profiles

Agnes Muli: Metalworker

Christine Mwelu: Cereals vendor

Christine Musimbi: Salon owner

John Ng’ang’a: Carpenter

Rose Elijah: Clothes seller

Shadrack Muli: Vegetable vendor



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