Informal Entrepreneurship

Informal entrepreneurship refers to economic activity that occurs outside of the formal economy, which is typically characterized by the absence of legal and regulatory frameworks. This type of entrepreneurship is often associated with small-scale, unregistered, and unregulated businesses that operate in the informal sector.

The informal economy is made up of a diverse range of activities, including street vending, artisanal production, and home-based businesses, among others. While these businesses may provide a means of livelihood for individuals and communities, they often face significant barriers to growth and sustainability due to their lack of access to formal financing, legal protections, and other resources.

In contrast, the formal economy is the part of the economy that is recognized and regulated by government institutions. Companies and entrepreneurs operating in the formal economy are required to pay taxes, adhere to labour laws and regulations, and obtain necessary licenses and permits. This creates a level playing field for businesses and provides a framework for economic growth and development.

While the formal economy provides important benefits, it can also pose challenges for entrepreneurs, particularly those who are just starting out. The regulatory and administrative burdens associated with formalizing a business can be significant, and may deter some individuals from pursuing entrepreneurship altogether.

Often informal entrepreneurship is so normalized in a society that it is considered legitimate in the minds of the majority, even if it might also be illegal (Webb et al., 2009).

According to Suchman (1995), legitimacy is:

“a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions”

Thus, one way of conceiving of informal entrepreneurship is to think of it as entrepreneurship that potentially is legitimate, but not legal. Webb et al. suggest that entrepreneurship that is both illegal and illegitimate is part of the renegade economy, not the informal economy.

According to Williams and Nadin (2010):

"legitimizing this hidden enterprise culture [informal entrepreneurship] could be an important means of promoting enterprise and economic development". 

All of this suggests recognizing informal entrepreneurship is a new avenue for economic development that is not just focused on innovation, high-growth business models, or technology venture, which receive the bulk of the attention.


Suchman, M. (1995). Managing Legitimacy: Strategic and Institutional Approaches. The Academy of Management Review, 20(3), 571-610. doi:10.2307/258788

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