Rural, informal micro-entrepreneurs at the heart of community resilience: Pathway 5

In the initial transition to this livelihood, the entrepreneur typically lacks management and formal financial literacy skills, and may struggle to find financing to start and develop their enterprise. While their business acumen may improve over time, they will continue to struggle with financial access. Rural, informal micro-entrepreneurs primarily rely on savings, community lending, and microfinance institutions (MFIs) for access to capital. Most of the financing and support for this pathway happens informally within communities. There are some formal support systems that have integrated these entrepreneurs into their agent networks—notably around mobile banking and PAYGO solar—however, this remains the minority.

Informal micro-entrepreneurs are critical in their communities. They are the true last mile sources of goods and services, providing everything from school uniforms to seeds to phone credit. There are many different types of pathway 5 entrepreneurs, varying by region, country, and community. In this briefing, we categorize them according to four primary identifiers. It’s important to note that there are other identifiers not listed here, and that a single entrepreneur may operate a combined enterprise, particularly when providing agent services.

It is widely recognized that micro-entrepreneurs are critical in service provision in rural communities; however, due to their informal nature, there is limited data on their characteristics. Their lack of access to more formal systems and service providers also makes them more vulnerable to exogenous shocks, such as COVID-19.

The pandemic is also constraining the ability of micro-enterprises to access finance. One of their main sources of financing, MFIs, are under pressure due to both the operational adjustments they must make with social distancing and the financial challenges from decreased repayments. In a survey of 177 MFIs conducted in Rwanda, 91% reported a decline in revenues and 87% reported liquidity challenges. Half reported discontinuing lending in response to these challenges (2). Today, MFIs are struggling not only to collect repayments for outstanding loans, but to issue new loans. Some MFIs report collection rates down by 30-50%, even more in areas that do not have mobile money (3). This precarious financial situation is expected to get worse as the pandemic lasts longer than the four- to six-month loan term of most MFIs.

This brief will consider the period during which many economies have lifted the strictest of lockdowns while maintaining a variety of restrictions. The longer term effects are likely to be an extension of these impacts—but that will be highly dependent on government decisions as the pandemic progresses.

Rural informal micro-enterprises are differentiated in this briefing by the types of services they provide and financing they need, as well as their connections into formal support services. In the context of COVID-19 these micro-enterprises are also affected by the demand and supply forces that are central to their operations.

The long-term effects as economies slow down are likely to be worse. If customers cannot pay for micro-enterprise services and these enterprises, in turn, continue to lose income, there will be a knock-on effect throughout communities. Decreased cash flow within households will have more ramifications when the next school semester starts, with many families likely to deprioritize education spending. And in the worst case scenario, if the virus itself reaches rural areas at scale, healthcare and funeral costs will cause significant financial hardship on families.

Rural, informal micro-enterprises—and the households that own them—are highly vulnerable. While they are often referred to as resilient, this resilience is not a strategy or character trait, but rather the only choice most entrepreneurs have if they want to keep providing for their families. They are not usually connected to formal mechanisms of lending or other types of support. As informal enterprises, they also receive no support from government programs. The effects of the pandemic risks pushing these entrepreneurial households squarely back into poverty.

Reduced livelihood opportunities for women impact the whole household, as this income is generally prioritized toward food, education, and healthcare. The most immediate impacts are likely to be a reduction of household food security, and a sharp increase in instances of gender-based violence.

Evidence from past crises has shown that there are also important longer-term impacts that risk rolling back important progress on women’s economic empowerment and agency. A loss or decline in income can be devastating for women’s economic empowerment, as their starting point in terms of earnings and bargaining power is already lower than men’s. During the Ebola crisis, travel restrictions severely impacted the livelihoods of women traders in West Africa; while men’s economic activity soon returned to pre-crisis levels, the effects on women’s economic security lasted much longer.

However, evidence suggests that crises can open up space where prevailing gender norms can be contested. In times of financial difficulty, women often try to pick up the slack for their families, beginning new economic initiatives or intensifying existing ones. Their increased ability to contribute to family finances and exert control over assets can help them gain more voice at home and in public spheres. This highlights the importance of integrating a gender lens into recovery efforts to support and accelerate potential positive shifts in gender norms brought on by the crisis.