The Trillion Dollar Informal Economy
Walk through any market in Lagos, Nairobi, or Jakarta and you are moving through one of the most resilient
Walk through any market in Lagos, Nairobi, or Jakarta and you are moving through one of the most resilient business ecosystems on the planet. The fruit seller who hasn’t missed a day in six years. The tailor with three people working under her, no contracts, no payroll software, no business registration. The hardware trader who keeps his inventory in his head and settles accounts through a WhatsApp group. None of them appear in any official GDP figure. Together, they represent the majority of how the world actually works.
The informal economy, meaning businesses operating outside formal regulatory and tax systems, accounts for roughly a third of all economic activity in low- and middle-income countries, according to the IMF. In Nigeria alone, there are an estimated 40 million informal businesses, and Moniepoint’s 2024 Informal Economy Report found they contribute more than half of the country’s GDP. The ILO puts the global figure at around 2 billion workers, or 60% of the employed population, spending at least part of their time in the informal sector. This is not a niche. It is the majority of human economic activity.
And the entire enterprise software industry has been built for the other 40%.
Informality Is a Business Decision, Not a Failure
Every government in the emerging world has a formalisation strategy. Nigeria’s finance ministry launched a flat 1% turnover levy on informal operators in 2025, framed as a gentle on-ramp into the tax system. India ran a nationwide push to pull street vendors and small traders into its GST net, recording over 2.5 million new registrations in the last financial year. Ghana’s Statistical Service surveyed its informal cross-border trade for the first time in 2024 and found it was worth 4.3% of total national trade. The official line everywhere is that informal businesses are informal by mistake, and that with the right nudge they’ll step into the light.
The data tells a different story. Registering a business in most emerging markets means fees, compliance costs, and becoming visible to tax authorities before a business is large enough to benefit from formal financial services. For the 79% of informal businesses on Moniepoint’s platform turning over less than N250,000 a month in profit, the cost of formalisation isn’t worth it. These businesses aren’t hiding. They’re making a rational calculation that the formal system costs more than it returns. Governments keep designing formalisation campaigns. Businesses keep doing the maths and staying put.
The tech industry made the same mistake as the governments. It looked at informality as a problem to be solved rather than a context to be designed for.
What M-Pesa Got Right
Kenya’s M-Pesa is the clearest example of what happens when you stop trying to fix informality and start building around it. Before its 2007 launch, 38% of Kenyans were completely excluded from the financial system. Bank branches clustered in cities, documentation requirements were prohibitive, and the only way to send money to a rural relative was to physically carry it. M-Pesa used basic SMS technology to build a payments layer that worked on any mobile phone, required no bank account, and ran through a network of local agents. No formalisation required.
The deeper impact came after the payments. By generating digital transaction records, M-Pesa gave informal traders something they had never had: a financial history. Creditworthiness no longer required formal accounts or collateral. It required a transaction trail. Mobile credit products followed. Access to formal financial services expanded from 26.7% of Kenyan adults in 2006 to over 82.9% by 2019, without requiring any of those adults to register a business or file a tax return.
M-Pesa did not ask informal businesses to become formal. It built infrastructure that made formal-adjacent services available on informal terms. Almost no one building enterprise software has followed that logic since.
The Software Stack Was Built for Someone Else
Open any accounting tool and the first thing it asks for is a registered business entity. E-commerce platforms require a bank account and a verifiable address. Payroll software assumes employment contracts and registered workers. Supply chain platforms integrate with formal invoicing systems. Every layer of the enterprise software stack was architected around the assumption of a registered, tax-compliant, bank-accounted business operating in a country with reliable internet.
That describes a tiny fraction of the businesses that actually exist. India reports 17 unregistered SMEs for every registered one. In Sub-Saharan Africa, informal employment represents more than 85% of total employment. The software industry built a ladder and put the first rung six feet off the ground.
Moniepoint is the most instructive example of what rethinking this looks like. It built POS terminals, business banking, and credit products for Nigerian informal traders with no formal financial footprint, and signed up over 2 million of them. The Financial Times named it Africa’s fastest-growing financial institution. But even Moniepoint’s own data shows the ceiling: 79% of businesses on its platform still make less than N250,000 in monthly profit. Payments and basic credit got built. The operational layer, inventory systems, logistics networks, demand forecasting, bulk purchasing access, hasn’t. A market trader in Accra can now receive a digital payment. She still can’t easily go from one stall to three.
The Funding Gap That Explains the Software Gap
Africa’s tech venture capital raised $2.2 billion in 2024, roughly flat versus 2023 and a fraction of what flows into Western markets addressing far smaller populations. The informal economy of Nigeria alone is larger than the GDP of many countries that attract ten times that capital. The mismatch has a straightforward explanation: investors in London, New York, and San Francisco find it genuinely difficult to evaluate businesses built for contexts they have never been inside.
The informal trader in Accra who manages millions in monthly inventory through memory, WhatsApp, and handshake credit does not map onto any persona in a standard venture deck. The business looks risky because the investor cannot read it, not because it actually is. So the capital goes elsewhere, and the software never gets built, and two billion workers keep running their businesses with tools designed for someone else entirely.
That is the actual state of the market. Not an opportunity waiting to be unlocked. A gap that has existed for decades because the people with the money to close it have never had to notice it.
Sources
African Marketing Confederation
