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Pathway 5 consists of micro and small service entrepreneurs who have informal enterprises in rural areas. They are typically members of a smallholder farming household who pursue an entrepreneurship livelihood as their primary source of income. These entrepreneurs may be involved in agricultural enterprise, such as small agro-vet shops; non-agricultural trading or services, such as owning a shop or taxi; or may have combined sources of income, such as being a mobile agent and shopkeeper. The defining feature of these entrepreneurs is that they manage informal enterprises with limited support from any networks and often pursue their livelihood out of necessity, rather than choice.

Illustrative taxonomy of rural informal micro-enterprises

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.


Rural, informal micro-enterprises, like many businesses, have been affected by the constraints on their client base and supply channels caused by the pandemic. Consumer demand has decreased, due to declining incomes and movement restrictions from government lockdowns and curfews. The movement restrictions may impact enterprises’ ability to open and get supply, and the decline in revenue can impact their ability to restock their stores. For informal micro-enterprises, the impact is more acute due to the role the income from the enterprise plays in family livelihoods and the lack of assistance options.

Across Africa, a VisionFund survey found that decreased demand and reduced consumer spending power were the biggest challenges to rural micro-enterprises. This is consistent across the different types of enterprises and geographies. While the overall impact is similar across types, they manifest in different ways and for different durations of time. For example, the VisionFund survey found that while pharmacies have experienced some decline in income, service-based enterprises have suffered more as customers make different spending decisions.

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.

Immediate impact of COVID-19 on demand of goods/services and supply of inputs for rural, informal micro-entrepreneurs


COVID-19 has had an immediate impact on household-level spending. A VisionFund survey across a number of African countries shows that 40-85% of the rural households surveyed reduced spending in food, with basic clothes and education for children also significantly affected. These immediate effects are likely driven by declines in direct income from enterprises affected by government lockdowns and social distancing, as well as a decrease in remittance payments coming from urban areas or overseas.

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.


Many women operate informal enterprises in rural areas. They pursue opportunities in this pathway because of time and mobility constraints that require flexibility and proximity to home. Because of barriers to accessing external financing, women-owned micro-enterprises are usually concentrated in sectors or activities that require low upfront investments and have lower barriers to entry. They tend to be concentrated in lower value-added (and thus, lower-paying) micro-enterprises such as retail trading, tailoring, catering, and food sales. These also happen to be high-contact activities that are most affected by lockdowns and restrictions.

COVID-19 is having a significant impact on women’s ability to generate off-farm income, due primarily to:

  • Closure of schools: Unpaid care work and childcare responsibilities already limit women’s participation, productivity, and earnings. School closures have intensified their workloads and reduced earnings, as children are typically seen as a woman’s responsibility.
  • Closure of markets and other public spaces: For many women, proximity to local markets enables them to combine home care with income-generating activities. Cenfri data from Kenya, South Africa, and Nigeria show that the most common sectors for income-earning women are “markets” and “selling goods.” The closure of markets and curfew restrictions effectively put a stop to their ability to generate income.
  • Seizing of local sources of finance and support: Only 5% of MSMEs in Kenya (of which the informal are dominated by women) get financing from banks or MFIs. Women are the majority users of informal finance mechanisms such as VSLAs and SACCOs, which are currently unable to meet due to lockdowns and social distancing guidelines. This limits not only their immediate access to finance, but their potential for future borrowing. These groups also offer invaluable access to networks and information; without them, women are cut off from relevant support mechanisms and information to help them mitigate the impact of COVID-19 on their livelihoods.

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.


There is a high risk of Pathway 5 micro-entrepreneurs collapsing in the wake of COVID-19—their informal nature and location at the true last mile of most services puts them particularly at risk. The survival of these enterprises, often an important source of household income for rural families, is critical to mitigate the risk to food security and national security. Their continued operation would ensure stronger resilience of rural households, particularly with regard to paying for nutritious food, school fees, and healthcare and funeral costs.

These micro-enterprises are not just what keep rural economies moving, they are also important conduits of finance and other services into rural areas. They are the “capillaries” that can bring access to finance, energy, and essential goods and services into remote communities. They are also disproportionately owned and run by women, who use their income to send their children to school and buy more nutritious food. Not creating the right crisis responses to support these entrepreneurs both in the short and long term risks significantly increasing rural poverty, and potentially leading to large-scale urban migration as families seek additional income through other means.

PITFALL #1: Governments and donors are providing staple food in some communities to overcome food security challenges, while overlooking the need to keep cash flowing to micro-enterprises.

  • ACTION NEEDED: Supplement direct food and other types of aid with cash transfer programs or voucher schemes.

PITFALL #2: Governments and donors not adopting a sufficiently gender-sensitive approach across programs, policies, and funding decisions.

  • ACTION NEEDED: Gender sensitive initiatives and actions must be prioritized, with dedicated activities put in place in rural areas to counter the risk of gender-based violence and child marriage.

PITFALL #3: Governments support formal financial institutions, overlooking the important role Tier 2, 3, 4 (and informal) finance institutions play in rural economies.

  • ACTION NEEDED: Develop strategies that support MFIs and other last mile service providers, incentivizing them to increase their supply of recovery financing to informal borrowers in rural areas.

PITFALL #4: Service providers and donors overlook the very last mile rural, informal micro-entrepreneurs as potential drivers of resilience in rural communities.

  • ACTION NEEDED: Commit resources to reimagining how rural last mile services can be provided.
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