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close this bookVolunteer Participation in Working with the Urban Poor (UNDP - UNV, 64 p.)
close this folderII. Insights derived from community-based programmes
close this folderUrban informal sector
View the document(introduction...)
View the documentMicro-enterprise promotion
View the documentWorking conditions in the informal sector
View the documentThe ILO experience


One of the main priorities of low-income groups in urban areas is the need for more employment opportunities and income-earning support. The informal sector is where most low-income urban communities find their livelihood, realise their economic potential and develop their skills. Yet because the rigours of the market and other factors make this a volatile and vulnerable arena, it is often difficult to promote community-based programmes in the informal sector.

The "informal sector" is a term loosely used to describe income-generating activities which are not guided by formal contractual relationships, institutions, standards and guidelines, as in the "formal sector." Roughly half the total urban labour force in most developing countries is employed in the informal sector; in several Latin American countries, informal sector production may generate as much as 70% of national GDP. Two major factors account for its continued growth: rapid increase of the urban population and poor macro-economic performance, combined with structural adjustment measures that lead to retrenchment of public sector investments and payrolls.

The main characteristics of the various contractual relationships found in the informal sector -- self-employment, disguised wage-work, home-based outwork, apprenticeship, and unpaid family labour -- are low and stagnant levels of remuneration; insecurity of employment and instability of income (vulnerability on the labour market); excessively long working hours; and abysmal and unhealthy working conditions, including lack of work-space, especially within extremely low-income settlements. Trade and services tend to predominate over construction, manufacturing or administration. Other traits of the informal sector include the existence of exploitative relationships with the formal sector in terms of credit, raw materials and equipment, and markets; and work tends to take place within a hostile policy environment that leads to frequent harassment. In addition, workers are usually young, and a large proportion of them are women, who have almost no access to avenues of education or skill-development.

The urban informal sector is not entirely composed of groups from low-income urban communities, even though they do account for a majority of the individuals involved in it. Studies indicate that there are three broad categories of activity in the informal sector. The largest category consists of small-scale retail trades and services such as street vending and shoe-shining which operating at a survival level with minimal capital. A second large category consists of craft and trade activities which produce cheap goods and services, primarily for the local market. Finally, there is a much smaller category of capital-intensive units which exist on the fringe of the formal sector. In many cases, the output from these activities successfully competes with goods produced in the formal sector.

In developing programme approaches for support to the informal sector, organisations have been divided in terms of the activities and individuals which they have targeted as their primary clients. In part, this has been a function of the kinds of contributions (e.g. credit) the organisations have been willing to make, and the time-frame within which they wished the communities to become economically self-reliant. As OXFAM concluded after a review of income-generating activities in urban areas, organisations have demonstrated some ideological thrust in their support work, which may prejudice the economic viability of the groups being helped. In other words, some organisations have favoured an approach based on a liberal economic paradigm which espouses fair competition, free markets and the principle of comparative advantage. The main thrust of this approach seeks to build the capacity of a viable business community for capitalist development and enterprise promotion -- a "business-oriented" approach -- rather than focusing on principles of community, cooperation and poverty alleviation: a "poverty-oriented" approach.

Micro-enterprise promotion

USAID, through its PISCES Programme (Programme for Investment in the Small Capital Enterprise Sector), has one of the longest histories of large-scale support to urban micro-enterprises, generally self-employment schemes which may rely on family labour. Micro-enterprise promotion involves the distinction between (a) the pre-entrepreneurship phase, when considerable organisational and familiarisation work has to be done with recent migrants, refugees and others who are new to commercial enterprise; and (b) entrepreneur support, which targets those who have already demonstrated initiative and commercial skills, and are fully aware of their needs for further growth.

The main instrument of micro-enterprise support has been the supply of credit, usually in small doses (USAID's average loan was $387 in 1989, for example). Four basic business needs are also provided for: markets, resources (credit), know-how (technical assistance or "TA"), and supportive policies. In general, the allocation of support tends to fall along the following lines: credit -44%; training and TA -23%; institutional development 20%; and policy and regulatory reform -4%. Credit is frequently given for working capital: raw materials, tools and equipment, working or selling-space, and labour. Programme elements include: carrying out feasibility studies; outreach and promotion work; selection of clients; credit operations, which include tailoring loans and their terms, building incentives for payback, supervising and monitoring, and graduating to local financial institutions; management and technical training.

In microenterprise promotion, the role of external catalysts, such as volunteer organisers and trainers, is often critical. The major reasons for using VDWs in microenterprise schemes include recognising the importance of cooperation and community activities and the necessity of working and living closely with the community for an extended amount of time. It has been widely noted that for pre-entrepreneurial work to succeed, community development activities, collective workspace and collective marketing activities are powerful incentives. Hence, VDWs are the key to working through group structures, promoting mutual cooperation and the informal exchange of information, assisting in developing a process of empowerment, as well as reducing costs and facilitating delivery. PISCES has been handled through international and local NGOs, and Peace Corps Volunteers have been more involved in this area since 1983.

Other benefits of using VDWs include their ability to work with existing local organisations who have proven outreach into the low-income communities. Social workers, for example, need to be with the same communities for 1-3 years to help them through the pre-entrepreneurial phase. This includes training in developing a process of participation and a sense of solidarity with a view towards self-reliance (for example, on the issue of credit schemes, group members can set their own repayment agendas and evaluation, monitoring and enforcement mechanisms). Greater use of local volunteers from the community itself also presents enormous scope for this type of work.

Generally, VSAs share many qualities seen as the major virtues of NGOs dealing with microenterprises, such as being in a pivotal position between different levels and relevant groups and organisations to allow for greater flexibility and networking ability. In addition, NGOs and VSAs share many concerns: the necessity of follow-up, the need to expand outreach, targeting services according to need, and the control of their portfolio size in order meet targeted goals, while increasing selfsufficiency and promoting the reinvestment of capital. There is enormous potential for VSAs to provide these NGOs with the necessary VDW support for their work with microenterprises.

Nevertheless, microenterprise promotion barely reaches one per cent of the enterprises in targeted cities. In light of the current focus on credit schemes, financial resource constraints are unlikely to inhibit the expansion of microenterprise schemes. Rather, the success of micro-enterprise development hinges on careful nurturing in the early stages of project definition, dialogue, and hands-on support. Specialised training may also be necessary as competition with formal sector enterprises becomes imperative to continued success. Eventually, resources for this training may have to come from nation al and local sources. The nurturing required for this entire process demands substantial human resources, and it is here that VDWs find their greatest role in microenterprise promotion.

Working conditions in the informal sector

Dismal working conditions are among the most pressing problems of the urban informal sector, which affect individuals who are self-employed, wage-workers, apprentices, as well as those involved in outwork (piece-work usually at home) or unpaid family labour. In many cases, these problems are associated with the lack of primitive levels of services and utilities - the absence of which presents even higher costs to informal sector enterprises (transport, fuel, electricity, warehouses). The extreme shortage of work-space and marketing space in densely populated low-income settlements, for example, is a major setback to the potential expansion of the informal sector.

Nevertheless, there are examples of successful community initiatives to improve working conditions. Arising out of credit schemes, three women's groups in India (Self-Employed Women's Association (SEWA) in Ahmedabad, the Annapurna Mohila Mandal in Bombay, and the Working Women's Forum (WWF) in Madras) have established excellent reputations in working with low-income urban groups to help them improve their working conditions, using credit schemes as an entry point for organisational assistance. Assistance in organisation has been one of the major requirements of groups struggling for higher wages, such as the workers in Nipani, India who assemble local cigarettes or "beedis." By developing links of solidarity, workers, women's groups and others have been able to establish multi-purpose consumer cooperatives, dispensaries etc., and, more importantly, to develop a process of local participation to address their self-defined concerns. In this process, VDWs were key catalysts in assisting groups in organising themselves to address their concerns, which extended beyond those of their workplace.

A similar example is the work of the Church Missionary Society Friendly Taxi Drivers' Association in Lagos, which was able to organise itself to address work-related and other concerns of its members. Starting with an urgent need to have a common stop-off point where they could count on support facilities, which developed into the Lagos Taxi Park, the Association has been able to expand into areas of credit and storage, and establish marketing stalls and various forms of mutual support. In other situations, motivated and committed VDWs have been key in the organisation of Mobile Creches, operating in India's major cities, for the welfare of migrant worker families - particularly through infant and child care facilities for working parents, which also deal with issues of nutrition, pre-school and adult education and family planning.

In all these examples, there was a direct correlation between the success of the initiative and favourable government policies. It is clear that governments could do more through favourable legislation, extension of credit facilities, provision of training, technology and marketing outlets, as well as directly improving community services for the informal sector, to create a conducive environment to improve working conditions. In addition, NGOs and VDWs could play a greater role in organisational assistance to self-help initiatives and awareness-raising of community rights.

The ILO experience

Increasingly, UN-system projects are focusing on micro-enterprises which lend themselves to a combination of entrepreneurial training and a package of business advisory and credit services. These types of micro-enterprises, rather than those involved in trading and service activities, are seen as clearly amenable to growth and thus capable of transforming themselves into formal sector profit-oriented enterprises through productivity augmentation, technological transfer/adaptation, capital accumulation and skill development.

Within the framework provided by the World Employment Programme, the ILO since 1982 has actively sought to encourage the self-help initiatives of artisans and other workers in the informal sector to improve their income levels and living standards. ILO has also directed greater attention to encouraging the development of micro-enterprises undertaken by women and unemployed youth, even those with no formal education.

One such programme, notable for its participatory approach, is the "Programme to Support Urban Informal Sector Enterprises in French-speaking Africa" in Mali, Togo and Rwanda. This programme took two years (1982-83) to develop a suitable approach to issues of collective concern to individual artisans, which was to become the mainspring of further organised action. Three more years (1984-86) were devoted to strengthening nascent organisations encouraging self-management and providing technical assistance relevant to production needs. The final phase of the project involved the consolidation of CBOs so that they could develop a credible partnership with local authorities and institutions. At the same time, the central associations of these CBOs in capital cities were strengthened in financial and operational autonomy.

A major lesson from this and similar experiences shows that bottom-up participatory work requires time to take root so that it will become sustainable: flexibility is of utmost importance. This type of approach cannot be rushed to suit bureaucratic requirements such as project deadlines or tightly-defined expenditure schedules. Many institutions which initially embark on community-based organisational work find their that their endeavours fail, largely due to institutional impatience.