Zoom In: 5 Key Insights from Moniepoint’s Informal Economy Report

Earlier this month, Moniepoint, a Nigerian fintech company that  provides businesses with access to mobile business banking solutions such as bank accounts, Point of Sales (POS) machines, loans, etc. launched its first Informal Economy Report in partnership with SMEDAN and Nigeria’s Federal Ministry of Industry, Trade and Investment. The report dives into the informal economy and highlights interesting characteristics and findings.

The informal economy which is made up of nano, micro, small and medium sized enterprises that are largely unregistered make up about 89.4% of the 40 million MSMEs in Nigeria according to the report. Simply put, this is the part of the economy that covers the fruit seller down the street, your nail technician, social media manager, and maybe your own ‘side hustle’. The report breaks down the Nigerian informal economy by region, gender, age and merchandise.

The report leverages Moniepoint’s internal data from over 2 million business owners (excluding CICO agents) that signed up on Moniepoint between 2019 and February 2024. They also they survey business owners and conduct street interviews to deepen their insights. Finally they leverage publicly available  data for the research report.

The findings from this report confirms some existing rhetoric about the informal economy and its productivity, but more interestingly, it gives a fresh and new perspectives on their contribution to the national economy especially taxation. Alongside this, it shines light on some gaps that can accelerate productivity if filled, presenting policy makers and industry players with new opportunities as well as new questions.

There are tons of insights to glean from the report, here we highlight 5 key insights that can inform policy and product creation.

Deep Dive

The average monthly income (profit) of an informal business is less than ₦250,000

Low profitability is a feature that largely underscores the informal economy, mostly because of its scale of operation. Moniepoint finds that 79.4% of businesses make about ₦250,000 in monthly profits, and approximately 90% make less than ₦500,000 in profits monthly.

Powering up the informal economy which employs about 85% of the sub-Saharan African population is essential, as this will directly translate to better standards of living for the people it employs. This is even more critical as inflation bites and cost of living increases.

Low profitability also impedes the capacity of businesses to grow and transition into the formal sector (if we assume that growth and scale drives formality).

70.1% of the businesses surveyed say they have accessed some form of credit for their business

With 70.1% of the 2 million businesses surveyed (amounting to about 1,402,000 businesses) saying they have accessed some form go credit, it is obvious that there is a demand for credit among informal businesses.

However, the informality of these businesses mean that they may be unable to access loans from mainstream financial institutions. The report confirms this as only 12.2% of loans were received from traditional banks. Additionally, the subsistence nature of the businesses in this economy also mean that they rely on family and friends for loans.

While there are credit markets that exists outside family, friends and traditional banks, high interest rates (double digit and triple digit annual rates), security and privacy infringements plague the sector.

Innovation in the credit market of emerging economies is important (even urgent) for business growth, development and scale to happen.

89% of informal businesses pay some form of taxes

Many definitions of the informal economy have tagged them as unregulated, untaxed, and “hidden from public authorities for monetary, regulatory, or institutional reasons”. However, the reality on ground as the Moniepoint report finds is that almost 9 out of 10 of these businesses have paid some market levies in their lifetime. 65.1% pay these levies regularly, 23.6% pay sometimes, and only 11.3% do not.

These levies often paid through market unions and councils to the local or state governments are not easily evaded since they come with huge repercussions such as seizure of goods, and closure of businesses.

92.4% of businesses in the informal market save money

Almost all business save money, this is also true for the informal businesses surveyed by Moniepoint. 92.4% of these businesses save, but what is interesting though common in emerging economies is that 47.5% these businesses continue to save through cooperative unions and associations.

More interestingly, savings with digital banks is growing at 39.5%. However, this figure may be upwardly biased, since the research subjects are Moniepoint users and may be more susceptible to using technology in any case.

The caveat not withstanding, the data still signals that there is a market opportunity for merchant-centred fintechs to play as savings providers. This can be either through the direct savings products for business owners, or through products tailored for cooperatives.

Card and Transfer payments are customers preferred ways of receiving payment, but business owners prefer cash

In the informal economy, almost half  business owners surveyed by Moniepoint prefer to be paid cash. However, customers are more digital; preferring to pay either through cards or through transfers.

There are still other digital modes of payments like QR codes, however, those have not taken deep root in the landscape. Moreover, in a cards vs. transfer comparison, the report highlights that 80.2% of customers prefer to pay with card and just 19.8% prefers to make a transfer.

The Moniepoint report provides insights and fresh perspectives for everyone in the informal economy value chain, from business people to policy makers.

To find out more about the informal sector, what they spend on, their lifespan, how they expand and more, download the full report here.