According to the International Labour Organization (ILO,) the share of informal employment in total employment is actually higher than 85% in Africa and Southern Asia, the regions which account for most of extreme poverty.
While the COVID-19 pandemic has impacted the global economy, economic opportunity in low- and middle-income countries has become even more challenging:
To learn more about how the pandemic has impacted the informal economy, watch this short video.
Various interventions have succeeded in reaching people in the informal economy by providing opportunities to start or expand micro-businesses to lift themselves out of extreme poverty. These interventions are most effective when bundled to reinforce one another, creating the foundation of the economic inclusion approach. Among the best-known economic inclusion programs are microfinance with client accompaniment, and graduation programs. Other promising initiatives are being studied to understand their effectiveness. It is estimated that economic inclusion interventions currently reach over 90 million individuals, half of whom live in extreme poverty.
Microfinance consists of the provision of financial services to households with limited or no assets/income and typically consists of tiny loans or savings instruments (or both). Microfinance, pioneered in the 1980s by BRAC and Grameen Bank (for which founder Muhammad Yunus received the Nobel Peace Prize in 2006), has been adopted and adapted internationally. It produces the best outcomes when it is coupled with other non-financial interventions like coaching and training.
Graduation programs offer a more elaborate approach. In addition to funding in the form of loans or grants, they provide time-limited consumption support - often as part of a social assistance scheme - as well as business coaching. The graduation approach has been rigorously tested and has proven in three continents to yield sustained positive results over time. The International Development Research Centre, a partner organization of Global Affairs Canada, recognizes that the graduation approach “is proving to be a cost-effective way for governments to reach people who have yet to benefit from poverty reduction efforts.”
In addition to microfinance and graduation programs, economic inclusion programs include initiatives such as work-for-food that do not necessarily include the transferring of funds.
Canada has had a long history of supporting the microfinance movement. In the late 1990s and 2000s, Canada sat on the Executive Council of the Microcredit Summit Campaign whose purpose was to reach 100 million families living in extreme poverty to provide credit for self-employment and other financial and business services. After attaining this goal, a more ambitious target of reaching 175 million families was set, along with a goal of seeing 100 million families cross the extreme poverty line and move into moderate poverty. Canada also co-financed and hosted the Halifax Global Microcredit Summit with monarchs, heads of state and government, and ministers representing over 100 countries in 2006.
Over the last decade however, Canada’s role in the microfinance movement has dwindled and funding has halved since 2014. The sums provided by the Canadian government to support economic opportunity for micro, small, and medium enterprises amount to less than 1% of our foreign aid budget. Yet with the adoption of a Feminist International Assistance Policy (FIAP) that indicates support for economic opportunity, Canada is once again poised to expand its leadership in microfinance and economic opportunity. In 2021, Canada announced that it was joining a strategic partnership with BRAC, the leading organization for graduation programs.
Canada’s Feminist International Assistance Policy recognizes that “for women to participate equally in contributing to economic growth, they must also have greater access to and control over assets such as land, housing, and capital. Limited access to financial services, such as banking, credit, and insurance, makes it difficult for low-income households to recover from events such as a poor harvest or a health crisis. This limited access to vital financial services also results in lost economic opportunities, particularly for small- and medium-sized enterprises owned by women”.
The Policy further commits to supporting the empowerment of women and girls as key economic actors, as well as exploring innovative ways to ensure that growth reaches the people living in extreme poverty.
Recognizing the importance of this issue, Global Affairs Canada recently included the “Number of entrepreneurs, farmers, and smallholders (men and women) provided with financial and/or business development services through Global Affairs Canada-funded projects” as one of the 12 performance indicators of its international development program.
The Minister of International Development’s 2019 mandate letter stipulates that she is to prioritize “reducing poverty, including by creating opportunities for women on the ground in lower-income countries”.
In January 2021, Results Canada launched an economic opportunity campaign asking Canada to demonstrate a sustained commitment to addressing this issue by joining the Partnership for Economic Inclusion (PEI) which is the repository of best practices for economic opportunity programs, especially graduation programs. So far, various volunteer letters have been published in newspapers in BC, Alberta, and Ontario and numerous letters were also sent to the Minister of International Development asking her to join the PEI.
Located in Washington, DC, the Partnership for Economic Inclusion (PEI) was created in 2018 as an excellence centre to disseminate evidence-based best practices in economic initiatives for people living in extreme poverty. It is housed at the World Bank and supported by the United Nations, non-governmental organizations, and the Government of Germany. PEI is actively looking for more countries to join. They published the authoritative State of Economic Inclusion 2021 report in February 2021.