Sarah Gammage speaking at the 2019 SEEP Annual Conference.

As development practitioners, we tackle challenges and opportunities facing women entrepreneurs globally. Experts debate topics from addressing violence to fostering financial inclusion at events, including the 2019 SEEP Annual Conference. Yet there is frequently little discussion about the quality of employment in women’s enterprises and the critical role that the public sector can play in ensuring that women entrepreneurs, owners and workers in women’s businesses, thrive and have access to the same benefits afforded to formal sector workers. The absence of the public sector and discussion of the policies that it can implement to foster entrepreneurship, unlock capital, incentivize financial inclusion and invest in growth is symptomatic of a global trend that sees a diminishing role for governments and public policy.

Informal Entrepreneurship

Across the developing world, people are propelled into entrepreneurship by their need to earn and generate an income. The World Bank estimates that the micro-enterprise sector accounts for an average of 47.2 percent of GDP in low-income countries and 13 percent in high-income countries. This means that self-employment or setting up micro and small enterprises is often the only viable livelihood opportunity for a significant number of individuals. It is not surprising, therefore, that almost 70 percent of these enterprises are informal, and that owners, managers and workers have no pensions, social protection or the rights afforded those in the formal economy. These challenges notwithstanding, self-employment and micro and small enterprises sustain households and families and inject critical resources into local economies worldwide.

Governments can implement policies to foster entrepreneurship and cultivate an ecosystem of resources and funding that is essential to grow fledgling businesses. The entrepreneurial ecosystem includes regulatory frameworks and infrastructure, business networks and associations, forward and backward linkages between firms and enterprises, mentors and advisors, investments in human capital and local and global markets. Access to social protection and pensions is also key to ensuring that work in these enterprises generates some of the same benefits that formal employment secures. Yet, in many cases, when the enterprises are informal, workers and owners are unable to contribute to pensions and social protection.

Case in Point: India’s National Pension Scheme

It is not surprising, then, that governments seeking to formalize work in the informal economy have been exploring how to extend pensions and social protection to those workers who do not currently contribute to these systems. India’s national pension scheme has recently been re-designed to serve poor and informal sector workers, many of whom are women and entrepreneurs. The scheme comprises three pillars. The first pillar is the Indira Gandhi National Old Age Pension Scheme, which provides a minimal monthly payment (INR 200, USD 2.82) to the very poor over the age of 65 (in practice, it has very low coverage). The second pillar, Atal Pension Yojana, is designed to reach informal sector workers. In this pillar, each contribution made by individuals to the pension fund is matched by a 50 percent co-contribution from the central government or Rs 1,000 (USD 14.12) per annum, whichever is lower, for a period of five years. All workers who subscribe before the age of 40 are eligible for monthly pensions of up to INR 5,000 (USD 70.61) after turning 60. The third pillar of India's pension scheme relies on private contributions, which can be in the form of micro-pensions that are designed to make it easier for informal sector workers to save for retirement. India estimates that over 10 million informal economy workers have been afforded pensions through these different schemes.

The Road to Risk, Innovation & Resilience

Social protection also provides a critical buffer for enterprises that can prevent economic and environmental shocks from forcing micro, small and even medium-sized entrepreneurs out of business. Access to health care and social welfare can foster entrepreneurship, even in developed countries. Gareth Olds (2014), a professor at Harvard Business School, finds that the State Child Health Insurance Program (CHIP, formerly called SCHIP) in the United States successfully achieved a 29 percent reduction in the number of uninsured children and a 23 percent increase in self-employment. In addition, CHIP helped to increase incorporated business ownership by 31 percent and the share of household income from self-employment by 16 percent, suggesting that many of these enterprises are high-quality ventures. The increase in income and entrepreneurship is driven by both a 12 percent rise in the creation of new firms and an 8 percent increase in their survival rates. The study also documents a large increase in labor supply as a result of the CHIP, equivalent to almost 8.8 million full-time workers. He goes on to claim that there is strong evidence that entrepreneurs contribute to innovation, job creation and economic growth and that public health insurance programs have encouraged the growth of small enterprises and the creation of jobs.

This view of social protection sits well with earlier work by Holzmann and Jorgensen (2000), which showed that social protection ballasts households, communities and economies against risk and may even encourage more risk-taking and innovation while protecting basic livelihoods This is particularly important for women, who typically have less cash and seed capital to start businesses and take economic risks.

Creating universal social assistance programs and providing parental leave benefits and health care to those working in informal enterprises will be essential to ensuring they have the same rights as workers in the formal economy. However, the current global focus on women’s entrepreneurship lacks a rigorous analysis of the enabling environment and the role that government can play crowding-in entrepreneurship and fostering decent work in Small and Medium Enterprises (SMEs). The SEEP Network, and the development community can take a leadership role in bringing this analysis to the forefront of the global discussion and help shape prominent programs like the Women’s Global Development and Prosperity Initiative and the World Bank Group’s We-Fi initiative. To make that happen will require a firm commitment to expand our focus on the enabling environment for decent work in SMEs and to broadening the discourse on women’s entrepreneurship in our membership and with our donors.

As Director of Gender, Economic Empowerment and Livelihoods, Sarah Gammage leads the organization’s work on women’s economic empowerment with a particular focus on the care economy, time use and time burdens and intra-household processes. She has more than 25 years of experience as researcher and feminist economist, providing policy advice and supporting strategic advocacy on gender equality in Latin America, Africa and Asia. She has written about and led research and policy innovation on gender, economic empowerment, livelihoods, labor markets, violence, migration, unpaid care and poverty. Sarah has a PhD in Development Economics from the Institute of Social Studies in The Hague and a Masters’ and Bachelor’s degree in Economics from the London School of Economics and Political Science.