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Short-term impacts of formalization assistance and a bank information session on business registration and access to finance in Malawi

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  • Campos,Francisco Moraes Leitao
  • Goldstein,Markus P.
  • Mckenzie,David J.
  • Campos,Francisco Moraes Leitao
  • Goldstein,Markus P.
  • Mckenzie,David J.

Abstract

Despite regulatory efforts designed to make it easier for firms to formalize, informality remains extremely high among firms in Sub-Saharan Africa. In most of the region, business registration in a national registry is separate from tax registration. This paper provides initial results from an experiment in Malawi that randomly allocated firms into a control group and three treatment groups: a) a group offered assistance for costless business registration; b) a group offered assistance with costless business registration and (separate) tax registration; and c) a group offered assistance for costless business registration along with an information session at a bank that ended with the offer of business bank accounts. The study finds that all three treatments had extremely large impacts on business registration, with 75 percent of those offered assistance receiving a business registration certificate. The findings offer a cost-effective way of getting firms to formalize in this dimension. However, in common with other studies, information and assistance has a limited impact on tax registration. The paper measures the short-term impacts of formalization on financial access and usage. Business registration alone has no impact for either men or women on bank account usage, savings, or credit. However, the combination of formalization assistance and the bank information session results in significant impacts on having a business bank account, financial practices, savings, and use of complementary financial products.

Suggested Citation

  • Campos,Francisco Moraes Leitao & Goldstein,Markus P. & Mckenzie,David J. & Campos,Francisco Moraes Leitao & Goldstein,Markus P. & Mckenzie,David J., 2015. "Short-term impacts of formalization assistance and a bank information session on business registration and access to finance in Malawi," Policy Research Working Paper Series 7183, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7183
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    Cited by:

    1. Hanna Berkel, 2018. "The costs and benefits of formalization for firms: A mixed-methods study on Mozambique," WIDER Working Paper Series wp-2018-159, World Institute for Development Economic Research (UNU-WIDER).
    2. David McKenzie & Anna Luisa Paffhausen, 2019. "Small Firm Death in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 101(4), pages 645-657, October.
    3. Benhassine,Najy & Mckenzie,David J. & Pouliquen,Victor Maurice Joseph & Santini,Massimiliano & Benhassine,Najy & Mckenzie,David J. & Pouliquen,Victor Maurice Joseph & Santini,Massimiliano, 2016. "Can enhancing the benefits of formalization induce informal firms to become formal ? experimental evidence from Benin," Policy Research Working Paper Series 7900, The World Bank.
    4. Galiani, Sebastian & Meléndez, Marcela & Ahumada, Camila Navajas, 2017. "On the effect of the costs of operating formally: New experimental evidence," Labour Economics, Elsevier, vol. 45(C), pages 143-157.
    5. Jessen, Jonas & Kluve, Jochen, 2021. "The effectiveness of interventions to reduce informality in low- and middle-income countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 138.
    6. Giacomo De Giorgi & Matthew Ploenzke & Aminur Rahman, 2018. "Small Firms’ Formalisation: The Stick Treatment," Journal of Development Studies, Taylor & Francis Journals, vol. 54(6), pages 983-1001, June.
    7. Cabrera, José María & Cid, Alejandro & Bernatzky, Marianne Bernatzky, 2016. "The effect of one-on-one assistance on the compliance with labor regulation. A field experiment in extremely vulnerable settings," MPRA Paper 84639, University Library of Munich, Germany.
    8. Pierre Nguimkeu & Cedric Okou, 2021. "Leveraging digital technologies to boost productivity in the informal sector in Sub‐Saharan Africa," Review of Policy Research, Policy Studies Organization, vol. 38(6), pages 707-731, November.
    9. Max Gallien & Vanessa van den Boogaard, 2023. "Formalization and its Discontents: Conceptual Fallacies and Ways Forward," Development and Change, International Institute of Social Studies, vol. 54(3), pages 490-513, May.
    10. Torm, Nina & Oehme, Marty, 2024. "Social protection and formalization in low- and middle-income countries: A scoping review of the literature," World Development, Elsevier, vol. 181(C).
    11. Distinguin, Isabelle & Rugemintwari, Clovis & Tacneng, Ruth, 2016. "Can Informal Firms Hurt Registered SMEs’ Access to Credit?," World Development, Elsevier, vol. 84(C), pages 18-40.
    12. Benhassine,Najy & Mckenzie,David J. & Pouliquen,Victor Maurice Joseph & Santini,Massimiliano, 2015. "Finding a path to formalization in Benin : early results after the introduction of the entreprenant legal status," Policy Research Working Paper Series 7510, The World Bank.
    13. Floridi, A. & Demena, B.A. & Wagner, N., 2019. "Shedding light on the shadows of informality," ISS Working Papers - General Series 642, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    14. Brian McCaig & Jordan Nanowski, 2019. "Business Formalisation in Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 55(5), pages 805-821, May.
    15. Zucco, Cesar & Lenz, Anna-Katharina & Goldszmidt, Rafael & Valdivia, Martin, 2020. "Face-to-face vs. virtual assistance to entrepreneurs: Evidence from a field experiment in Brazil," Economics Letters, Elsevier, vol. 188(C).
    16. Benhassine, Najy & McKenzie, David & Pouliquen, Victor & Santini, Massimiliano, 2018. "Does inducing informal firms to formalize make sense? Experimental evidence from Benin," Journal of Public Economics, Elsevier, vol. 157(C), pages 1-14.
    17. Aga,Gemechu A. & Francis,David C. & Jolevski,Filip & Rodriguez Meza,Jorge Luis & Wimpey,Joshua Seth, 2022. "Surveying Informal Businesses : Methodology and Applications," Policy Research Working Paper Series 9905, The World Bank.
    18. Damien GIROLLET, 2023. "Digital divides among microsized firms: Evidence from Sub-Saharan Africa," Bordeaux Economics Working Papers 2023-03, Bordeaux School of Economics (BSE).
    19. Hanna Berkel, 2018. "The costs and benefits of formalization for firms: A mixed-methods study on Mozambique," WIDER Working Paper Series 159, World Institute for Development Economic Research (UNU-WIDER).

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    Keywords

    Business in Development; Gender and Development; Access to Finance; Private Sector Economics; Private Sector Development Law; Marketing; Transport Services;
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