Financial Inclusion as a Pathway to Informal Sector Sustainability in Africa

Small, Medium and Micro-sized Enterprises (SMMEs) are the backbone of economies worldwide. However, the ‘unseen economy challenges’ hinder their sustainability in developing markets. Many informal businesses operate outside formal financial systems, limiting access to credit, banking services, and growth opportunities. Financial institutions are pivotal in addressing these barriers by enhancing access to financial systems and developing innovative financial products. This study examines how financial inclusion, embedded within an ecosystem approach, can assist businesses in the informal sector to become more sustainable in the long term. Using a qualitative design, the study investigates how formal and informal finance intersect to support informal SMMEs in South Africa and beyond. A structured literature review and thematic analysis of studies from the last seven years inform the development of a conceptual framework linking financial inclusion to informal business sustainability. The framework incorporates the SMART goal-setting approach to guide financial institutions in engaging with informal businesses. The study emphasises a holistic approach, integrating financial inclusion, ecosystem support, and tailored financial products for informal businesses. The proposed framework advocates for a support ecosystem where informal lenders and formal institutions can work together to tackle issues such as cash reliance, theft risks, and limited growth opportunities. Formal financiers may want to become part of a support ecosystem that is transforming into an attractive option, even for the bankable in informal markets. Recommendations include collateral alternatives, administrative simplicity and trust-building strategies to enable financial institutions to serve this market more effectively. The study also identifies priorities for future research, including practical tools and policy pathways that foster deeper financial integration for informal businesses.