Discussion Paper No. 227 of 2019 on Assessment of Institutional Structures Governing the Informal Sector in Kenya

Abstract

Institutions play a role in determining the economic growth and development of a country. Like many developing countries, Kenya focuses on policy, legal frameworks and development strategies for MSEs due to their ability to improve the competitiveness of a country in the global economy. There have been concerted efforts by the Kenyan government to formalize the informal sector which continues to grow tremendously, constituting 83.4 per cent of total employment. To address these challenges, the government and private sector has come up with institutions, policies, regulations and laws to coordinate, harmonize, manage and promote the development of the informal sector. The institutional framework used in this paper is a modification of the Institutional Analysis and Development (IAD) framework by Ostrom. The study involved a desk review of legal frameworks, policies, and regulations and institutions relevant to the informal sector and analysis of County Business Environment for MSEs (CBEM) Survey 2019. The findings include: Poor coordination, harmonization and management of the MSEs sector; Weak collaboration between National and County Governments in delivery of MSEA functions and development agenda for MSEs; overlapping and duplication of policy mandates such as those of KENIA, KIRDI and KIE; Lack of policies in some critical areas such as incubation, common manufacturing; Low level of training and capacity building; Low uptake of government funding initiatives such as the Youth Enterprise Development fund and Uwezo Fund; Inability to access financial assistance majorly due to lack of financial records and lack of collateral.