Across Africa the informal economy plays a significant role in creating jobs and alleviating poverty. Be it in cities or rural villages, millions of people operate unregistered small-scale businesses. These entrepreneurs include small retail shop owners, taxi drivers, street vendors and artisans.

But one perceived problem of the informal economy is that by its nature it is highly unregulated, and more often than not escapes taxation.

Elizabeth Kariuki, executive director of the Kenya Association of Women Business Owners (KAWBO), says beyond scooping up more taxes for governments, formalising would also lead to further growth for these micro-enterprises and greater benefits for all its owners.

World Bank statistics indicate that among the women-owned businesses in Africa, 63% tend to be informal, more than double the global rate.

Kariuki notes that in rural areas these women are usually home-based and concentrated in traditional sectors such as retail and services. Almost all, she says, do not formalise their businesses because of the costs, paper work involved, and fear of tax authorities. However, contrary to perceptions, there are also some significantly large women-owned businesses that operate informally and these are losing opportunities for further growth by continuing to do so.

“It really does limit their growth,” says Kariuki. “They are locking themselves out because an informal business can only expand to a certain extent. Additionally, as an informal entity, serious institutions like corporate firms would not want to do business with you.”

African women have often had fewer opportunities in business but she notes in recent years both government and the private sector have been embracing supplier diversity and are making it easier for women-owned businesses to compete for high-worth contracts. In Kenya 30% of all government contracts must be awarded to women, people with disabilities and youth. A business woman can, for instance, tender for a road construction project worth up to Ksh.1bn (US$11.4m) or a contract to supply services worth up to Ksh100m ($1.1m).

However, Kariuki stresses many miss such opportunities because their businesses are not formalised. “Government does not do business with an individual or some group. It will only do business with an incorporated entity. The minute a women’s group incorporates and formalises, that is the only time they will be eligible to do business with government.

“If they continue to operate as a merry-go-round, as something that is more social than economic, they will not participate. Corporate firms are also embracing supplier diversity and they are even stricter than government in enforcing rules.”

Kariuki notes that whilst formalising is “expensive” and one has to incur costs by using lawyers, accountants and auditors, these costs can be built into the product or services of the business.

Award-winning entrepreneur Eva Muraya notes that it is encouraging to see laws that enable women to begin to “engage with the biggest customer in the land, which is government”. The founder and group CEO of Brand Strategy and Design (BSD) argues that such progressive laws show that Africa is beginning to emerge out of the tradition of denying women economic prosperity by having them “chained, held back or stifled by cultural practices that have seemed to accept that women are less”.

However, both Kariuki and Muraya agree more needs to be done to increase the participation of women in doing business with government and corporate firms, especially in rural areas.

“Doing business with government has remained opaque [and] it has been misunderstood especially by women. So what now becomes necessary is to make sure that we are creating the awareness and training them on how to do business with government. Eventually it will have dividends for the national economy,” says Muraya, adding the private sector must understand that many woman, not just men, have good businesses.

Kariuki notes that the lack of financial muscle still limits women’s participation in big business. Although more banks have developed business banking products specifically targeted at them, most products “are camouflaged” with fancy names but often still require women to have assets to get loans and at the usual high interest rates. Such products only offer “flimsy benefits” and are packaged as “lifestyle”, not business products.

“They are all about manicures, pedicures, facials and massages. Really it is an account like any other – only that it comes with a manicure. They tell women you can bank with us and as a result we will send you to a spa. Now that is not what I am looking for as an enterprise. If my business is doing well, I can do a spa every week and pay for it myself,” says Kariuki.

She believes financiers should build products that are attached with “real tangibles benefits that a business or entrepreneur needs to scale up” such as accounts tied to a business club, networking opportunities, mentorship and coaching.

“If we are talking about a women’s business product, then it needs to have business benefits, not lifestyle benefits. Don’t promise me a shopping voucher at some beauty shop.”