The document summarizes research conducted on the size and nature of informal entrepreneurship in Pakistan. It provides details on how the research was conducted, including defining informal entrepreneurship, developing research questions, sampling methodology, data collection tools, and analysis plan. Key findings include that over 40% of small businesses operate informally, with the majority citing complex regulations and taxes as barriers to formalization. Qualitative interviews found small business owners face challenges like complicated laws that officials exploit for bribes and restrictive regulations. The research aims to inform policy measures to better support and formalize Pakistan's informal entrepreneur sector.

1. The Size and Nature of
Informal Entrepreneurship
and
How to Tackle it?
M Shehryar Shahid, PhD
Director, Centre for Entrepreneurship and SMEs (CESME)
University of Central Punjab

2. Presentation Track
• Definition & Research Questions
• What we did?
• How we did it?
• What will we do?
• When will we do it?
• What we found out?

3. Defining Informal Entrepreneurship
(ILO, 2011)

4. Q1: What is the size of informal
entrepreneurship in Pakistan?
I. What percentage of small businesses are operating
in the informal sector?
II. How does their percentage vary by sector?
III. Do all such businesses practice the same level of
informality, or does it vary across different
enterprises and sectors?

5. Q2: What are the motives for Pakistani
entrepreneurs to operate in the informal economy?
I. Are they all doing so out of necessity? Is it a survival practice
in the absence of alternatives? Or are they doing so more out
of choice?
II. Is it always an ‘economic motive’ that motivates small
Pakistan entrepreneurs to engage in informal work?
III. Are there any social/cultural factors that influence the
likelihood of entrepreneurs to participate in informal business
practices?
IV. How do their motives vary across different sectors?

6. Q3: What policy measures can be used to tackle
informal entrepreneurship in Pakistan?
I. What are the barriers to formalization faced by
informal entrepreneurs in Pakistan?
II. How do the barriers to formalization vary across
different sectors?
III. What should be done to formalise the informal
sector – deterrence or enabling option?

7. What we did?

8. Sampling Frame
LAHORE CITY
Instantly
Manufacturing Retail Consumable
(5 Zones) (7 Zones) Food Items
(7 Zones)

9. 2
5 7
1
4 6
3

10. Manu. Retail Restaurant Manu. Retail Restaurant
0 15 15 45 15 15
Manu. Retail Restaurant Manu. Retail Restaurant
10 10 10 25 10 15
Manu. Retail Restaurant Manu. Retail Restaurant
10 05 05 10 20 20
Manu. Retail Restaurant
0 25 20
2
5 7
1 4 6
3

11. How we did it?

12. Questionnaire
i. Demographics
ii. Business Introduction
iii. Size of Informality
iv.
v.
Motives of Informality
Ease of Doing Business
Total
vi. Risk Detection and Tax Morality questions:
vii. Employment and Workers
viii. Business Environment 75
i. Competitive
ii. Regulatory
ix. Problems and Prospects
x. Financing and Support Structures
xi. Policy Recommendations

13. Pilot Field Survey
• Three research teams
• Convenience sampling
• 10 face-to-face interviews in EACH sector
• Outcomes:
– Respondents were quite honest and forthcoming
– Development of shared language
– Elimination of a few personal questions
– Re-ordering of questions

14. Quantitative Field Survey
• Three teams of researchers
• Two research associates
• Time span: 3.5 months
• 312 face-to-face interviews at business premises
• Average interview time: 25-30mins
• Excellent response rate!
– (312 out of 330 responses)
• Weekly submissions and random follow-up calls
(approx. 30 calls)

15. Qualitative Field Survey
• Research Team (PI & RA)
• 15 face-to-face in-depth interviews
– Five in each sector
• Time span: 1.5 months
• Average interview time: 60mins

16. Survey Administration
• Weekly meetings with the PI and
questionnaires submission
• Follow-up calls to the respondents
(approx. 30 calls)
• Random visits of a research associate

17. What we got?

18. 22,000 data points
&
500 open comments!

19. What will we do?

20. Data Analysis: A mixed method approach
Qualitative Quantitative
Frequency
Interview charts/tables
statements
Cross
Thematic tabulations
coding
Ordinal Logistic
Model

21. Cross Tabulations
Q No. Description Q No. Description
B Age Versus 2.4 Legal status
I Income Versus 3.1 Number of registrations
Legal status/number of
D Sector type Versus 2.4/3.1
registrations
2.8 Start-up motivations Versus 3.1 Number of registrations
2.4 Legal status Versus 3.7 Type of account keeping
3.1 Number of registrations Versus 3.10 Tax morality
D Sector type Versus 3.4 Informality motives
Number of registrations/legal
3.4 Social/cultural motives Versus 2.4/3.1
status
Number of registrations/legal
3.4 Economic motives Versus 2.4/3.1
status
3.9 Ease of registration Versus 3.1 Number of registrations

22. Statistical Model
Inability to enter
Tax morality Age Income Education
formal economy
Sector
Corruption
Subcontracting
Ease of doing Tax level
business Level of
informality Risk of
Ease of detection
registration
Awareness
Individual level
Institutional level
Competitiveness Resistance towards
Structural level
government

23. Decision Matrix for the Level of Informality
Tax
Legal status Book keeping
registration
Formal Limited Liability Formal Account
5 Yes 4
Enterprise Company Keeping
1 Own-account Worker No written
1
accounts
2 Sole Proprietorship Informal
2 records for
Informal 3 Ordinary Partnership personal use
Yes/No
Enterprise Simplified
4 Registered Partnership 3 accounting
formats
Unregistered with
6
Employees 5 Others

24. When will we do it?

25. Future Direction
ACTIVITTY TENTATIVE DEADLINE
1 Submission of interim report 28 Feb 2013
2 Data analysis (quantitative and qualitative) 31st May 2013
3 Policy survey 30th June 2013
•Lahore (03-05 interviews)
•Karachi (03 interviews)
•Islamabad (03-05 interviews)
4 Review of international policy literature 15th June 2013
5 Policy seminar in UCP May 2013
(subject to the availability of speakers)
6 Compilation of policy survey results 15th July 2013
7 Final report 30th August 2013
8 Application for grant extension

26. What we found out?

27. Demographics
Education Employment Status
No education 2% Employer 41%
Primary 13% Own account worker 59%
Secondary 48%
Diploma 16% Age
University 21% 15-24 3%
25-35 54%
40-64 42%
Formal Job 65 and More 1%
Yes 4%
No 96%
Household Income
Less than 20,000 17.71%
Main Earner 20,000 – 30,000 36.46%
Yes 76% 30,000 – 40,000 26.04%
No 24% 40,000 – 50,000 8.33%
More than 50,000 11.46%

28. Business Type

29. Business Introduction
Life Span of Business
Less than 5 years 5-10 Years 10-20 years More than
20years
35% 26% 28% 11%

30. Size of Informal Entrepreneurship
Legal Status
20
31
2
4
43
Own-account business Sole Proprietorship
Ordinary partnership Registered partnership
Unregistered with employees

31. Size of Informal Entrepreneurship
(cont.)

32. Ease of Doing Business

33. Ease of Doing Business
Problems with Government Departments
Other
Custom
Food
Percentage
Tax
Labor
LDA
0 5 10 15 20 25 30 35 40

34. Ease of Doing Business

35. Tax morality and risk detection
Acceptability
Riskiness
18%
2% Highly acceptable
15% Somewhat acceptable
50%
Not acceptable
32%
very risky
somewhat risky
not risky
26%
Do not know
57%

36. Tax morality …..
Should the government register
businesses like you
Yes
No

37. Reasons to remain informal
Motives Percentage
Do not need/want to register my business 70%
All the similar businesses are not registered 40%
Non-registration is a common practice in my country 29%
The state does not do anything for the people so why 23%
should we obey the law
Other 19%
Registration system is corrupt 10%
Taxes are too high 8%

38. Qualitative Remarks
“The law is too complicated and the people who implement it also have a “price” and
then they will help the bribing person to abuse the law”
“The Labour Department gave me a challan because I do not close the shop on any
day of the week … It restricts my business freedom”
“The law saves only the powerful and the rich, they know how to use the loop holes”
“A simple submission of traffic challan takes 4 steps, which is more frustrating than the
fine itself, let alone filling tax return”
“I have heard from other shop owners that getting NTN is very complicated, so I did
not try”
If we give the bill with tax inclusive, the customers demand to make a “kacha” bill
without tax”
Departments force regulations only for few days, then no follow ups. I out the tax
number on display but means nothing after few days”