4. Micro-Insurance: Scope of Informal Economy

Informal sector is the pre-existence of the formal sector. However, its contribution to the world economy has been very recently recognised and debated upon. The word, “informal economy” was first brought into reference in 1970s. But its advocacy process began way back in the 1950s and 1960s when it was insisted that post-world war economy-building process should be not be confined to Europe alone, but should be extended to developing countries as well. The 1972 ILO Mission to Kenya first came out with an in depth definition regarding the concept of informal economy.

The informal sector is a common phenomenon in developing countries. It usually has the biggest share in the economy, but is least recognised. The ILO Kenya Report puts in, “Informal sector activities are largely ignored, rarely supported, often regulated and sometimes actively discouraged by the Government.” As a result, workers in this sector face employment problems such as minimum wage, long hours of work under difficult conditions and absence of any kind of social protection mechanisms. Micro-entrepreneurs under this sector fail to have access to formal sources of finances.

According to McLaughlin (1990), the informal sector is characterized by:

the use of family and unpaid labour (apprentices) and reliance on manual labour rather than on sophisticated machinery and equipment;
flexibility, allowing people to enter and exit economic activities in response to market demand;
simple and sometimes precarious facilities;
the ability to improvise products from scrap materials;
a willingness to operate businesses at times and locations convenient to customers; and
a tendency to locate smaller markets, out of the reach of the larger firms.