Direct Monetary Registration Grants
RCTReview
Informal business owners perceive formal registration as a net financial loss because immediate administrative registration costs outweigh uncertain future benefits.
Picture this
Think of business registration as paying an upfront toll fee to enter a paved highway. When cash flow is low, drivers remain on bumpy dirt roads. Providing a direct monetary grant at registration acts as a toll cash bonus that instantly offsets entry costs and incentivizes drivers to join the formal highway.
What the evidence says
Direct monetary transfers equivalent to one or two months of median business profit significantly increased firm formalization rates, whereas informational talks produced zero impact.
- Who was studied
- Informal micro-enterprises in Sri Lanka (De Mel et al., 2013) and Benin (Benhassine et al., 2018).
- How
- Randomized Controlled Trial (RCT) evaluating monetary transfer amounts against information-only controls.
What to do
Offer one-time direct cash transfers equal to 1-2 months of average business profit to informal micro-enterprises upon verified formal registration.
From the source
"In Sri Lanka, researchers found that providing a monetary transfer to informal firms (equivalent to one or two months of their median profit) in exchange for registration led to greater formalization"
JOI_Brazil_Evidence_in_Labor_Market_Policies_and_Implications_for.pdf