Balloon Ventures Research: Exploring sustainability in the informal sector
Balloon works with entrepreneurs in emerging economies, helping them to start or expand micro-businesses. Balloon provides training and support in many aspects including finance, marketing and promoting innovation. The programme also offers interest free loans to businesses struggling with access to finance and encourages sustainability within these businesses.
Early in 2016, Balloon began a research project in Kenya, interviewing over 25 entrepreneurs to gain a better understanding of the sustainability of micro-businesses in Kenya. The interviews looked beyond financial sustainability, to explore sustainability with regards to the environment, employees and the community.
The entrepreneurs that Balloon works with live in poverty and therefore usually operate outside government regulation, often referred to as the informal sector. This means that there is no one enforcing rules or laws on how to treat employees or reduce any damage to the environment. Given these entrepreneurs are also desperate for income and have little business education, the prevailing assumption is that corners are cut wherever possible.
In the context of sustainability, one would therefore expect these businesses to be engaging in a number of unsustainable practices. However, the interviews showed that there is a mixture of practices present in the informal sector: some are sustainable, other much less so.
One example is Lucy, who is a science teacher outside of Nakuru with a keen interest in the environment. She set up a business to capitalise on charcoal that is wasted by existing charcoal vendors. Lucy collects all of the general waste from around charcoal vendors’ businesses and then extracts any charcoal dust from this. The dust is then combined and baked producing an alternative to ordinary charcoal.
The collection process also had an unforeseen benefit in that collecting rubbish made the community noticeably cleaner. Therefore, not only does her business reduce the need for deforestation, but it is also contributing to protection of the environment through the reduction of waste.
The successful and expanding business allowed her to employ four people, offering opportunities to others in her community. Not only is this a learning opportunity, but employees are also paid (which is far from normal in the informal sector). They are also taught and encouraged to save some of their money for the future and are given time off work each week in order to learn how to drive. Lucy also provides them with dinner if they are working later and encourages them to set career goals for where they want to be in the future.
The impact Lucy’s business has on the environment and employees generally improves the community. Lucy also directly influences this by teaching other families about her business, so that they could also set up a similar enterprise. Ultimately, this is a great example of where an informal sector business is having a positive impact on the environment, its employees and the community.
A second entrepreneur included in the research is Margaret. Margaret set up a school and does not charge any in order to give children from the Rhonda slums access to an education. It now provides free education to 100 children.
However, while well meaning, this business offers examples of unsustainable practices. In terms of financial sustainability, it relies on well-wishers in order to fund the school and has no other source of income. Because of this, there is not enough money to pay the teachers and so they are all volunteers. This, and the fact there is no contract for their employment, has resulted in many teachers leaving.
The school is providing many children with an education that would otherwise be unavailable to them, but because their business practices are not sustainable, it has had a detrimental effect on the employees who do not have any money to provide for their families. So in essence while it hopes to create a better future for its students, it is actively contributing to a challenging present of its staff.
Similarly, lack of sustainable income means the school struggles to address government requirements such as providing children with uniforms. Therefore, this cost has been passed on to children as a requirement for admission. This could potentially prevent some of the children from the poorest backgrounds enrolling, forcing the organisation to compromise on its mission.
Sustainability is a key challenge of future development. It is enshrined at the highest institutional level in the ‘Sustainable Development Goals’. This research is helping us gain a better understanding of how informal sector businesses currently understand and are acting on sustainability issues. Contrary to expectations, there are clear examples of sustainable practices in informal sector business. Moreover, the research highlights how challenging sustainability can be as often well-meaning initiatives can harbour unsustainable practices. The next step is understanding what is needed to help businesses become more sustainable in a holistic manner.
To find out more about the research get in touch with the Insight & Impact team.
This blog was written by Alannah Keogh. Alannah went on a Balloon ICS programme in Njoro, Kenya in February 2016 and she is currently an Intern with the Insight & Impact team at Balloon Ventures.