81. Recognizing the faster growth and increasingly important role of the informal sector in the economy, the national employment policy (2008) focuses on its formalization (through licenses, VAT, and business registration) as though it was a panacea to addressing the problem of low productivity in the sector. The policy aims “to transform the informal sector so that it provides decent employment and increased productivity” and “to empower the informal sector to become formal in order to be able to access finance, training or any other BDS.” However, the policy also cautions that the informal sector is not in conformity with regulations, thus it is limiting its potential to create more jobs and increase its productivity. Further, the policy states that its aim is “to empower the informal sector to become formal in order for them to access finance, training, or any other business development service.” 82. These policy statements raise several questions. First, how would conformity with regulations help a sector that is almost regulated out of business? Second, is this approach in line with HEs own aspiration to not be transformed into a large employer, but rather to survive and bring sufficient cash income into the household? This “formalization” approach has not been useful, since neither the different programs supporting the sector nor the drive to formalize it has had significant tangible impact. Instead, the sector continues to grow amidst weak policy environment. Given their _nano_ size, formalizing HEs can be too costly and is generally less useful in improving their productivity. Moreover, it is important to note that in the specific context of HEs, formalization is not a priority objective. This disconnect between the policy framework and the sector has further limited the needed government support for HEs.

# 5.1.2 **Coordination Failure**

83. Reflecting its crosscutting nature, there exists a wide range of policies influencing the informal sector, with accompanying programs and projects being executed by various government agencies at the national and sector level (Table 5.1). Not surprisingly, the implementation of such policies raises significant coordination challenge, since there is no single institution solely responsible for the promotion and development of the informal sector.

84. One of the main efforts by the government aimed at promoting the informal sector, including the HEs, is the MKURABITA program. The program was established in 2007 to support the formalization of informal activities, focusing mainly on land registry and titling to increase the value of assets in the sector. To improve program implementation, a number of baseline studies were conducted. The results of these and other related studies, however, reveal that the needs of the informal sector are different from those identified by the program (Lyons and Msoka, 2007; VIBINDO, 2008). Moreover, the program is found to have little, if any effect in addressing the main constraints facing the HE sector. This comes as no surprise as the target beneficiaries from the informal sector know little or nothing about the program. A major finding of the VIBINDO study, for example, shows that over 96 percent of informal sector enterprise operators never heard of MKURABITA (VIBINDO, 2008). Based on this finding and the results of other related studies, various stakeholders recommend the need for rethinking the scope and implementation of the program.

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