Informal Sector Microfinancing for Poverty Alleviation in Namibia

Abstract

The relationship between poverty and informal labor has been the focal point of many literatures. Several literatures studied the one-directional relationship from poverty or informality . The result found that a low standard of living and low exposure to formal sector employment under poverty forced households into the informal sector. On the other hand, the economic conditions associated with informality, such as low wages and low skills, lower individual’s prospects and strip their chance into the formal sector. Contrary to the one-direction studies, Bolarinwa and Simatele (2022) investigated the simultaneous and dynamic framework between informality and poverty. Using data from forty sub-Saharan African countries, they concluded a bilateral causal relationship between these two factors, and the relationship seems to hinge on income level. Consequently, they suggested governments in the region focus on improving the access to resources to allow poor informal sectors to start or maintain basic income and thus achieve poverty reduction.One of the most significant challenges facing informal sector laborers is the access to financial resources. Some poor people in the informal sector may have entrepreneurial ideas to start a business, need stable funding to maintain their vendor businesses, or need emergency money for health or education-related expenses. However, most formal banks will reject their funding request due to a lack of collateral and high default risks.In this paper, I will provide recommendations to three questions of interest in tackling the financial resources access challenges that poor informal sectors face to achieve the poverty alleviation goal further. First, what non-African country’s experience is most relevant to an African situation? Second, what policies/programs seemed to have worked well elsewhere? Third, can these policies be pursued in Namibia? If so, what might be the potential obstacles during implementation? Lastly, I will end with my policy recommendations.