What is the “informal” sector, and why does it affect Cambodian women?

by | Apr 27, 2017 | Blog | 0 comments

A prerequisite to developing and launching SHE was extensive research into the position of women in business in Cambodia. Through this, we learnt that nearly 80% of Cambodian women participate in labour, and somewhat surprisingly, more than half of private business is owned by women. Sounds pretty good right? But as in most cases, the statistics fail to convey the lived reality. Women are certainly active in the Cambodian economy, but they continue to face gender discrimination, income disparity and job insecurity.

In particular, of the 65% of businesses owned by women, the vast majority of them exist in the informal sector. Given that women are over-represented in the informal sector worldwide, this was less surprising – in most developing countries, the informal sector is the primary source of employment for women. But what is the ‘informal’ sector and what implications does this have for women in business in Cambodia?

Broadly, the informal sector comprises of labour market activities that fall outside of government regulation and on which taxes are not paid. In developing countries in particular, the informal sector is a “pervasive and persistent economic feature”, mainly because it provides individuals with income where earning opportunities in the formal sector are scarce. This may take the form of anything from subsistence farming to street vending. 

Given this, in developing countries in particular the informal sector on its own is not a bad thing. Indeed, the informal sector is a source of job creation for individuals and families who otherwise wouldn’t be able to support themselves. However, the flip side of this is that workers are operating outside of the regulation of employment and safety legislation. The very ‘informal’ nature of the informal sector means that the work is often unstable and insecure. There are no contracts, enforced working or pay conditions, access to social services such as health-care or leave. In Cambodia, whilst it is relatively easy to find a job in the informal sector, workers face a high likelihood of labour abuse and receive significantly less pay than their peers in the formal sector . This insecurity has meant the informal sector has also earned the label of the “unprotected sector”. Basically, for workers relying on making a living in the informal sector, the future is extremely uncertain.

For women in Cambodia this presents a significant challenge. Traditional norms that place sole responsibility for the home on women mean that informal work is one of the only ways they can supplement their families incomes. Thus, many women start their own micro-businesses, often by taking out a small loan, that they can then run in addition to taking care of their families. However, operating within the informal sector, these women have little chance to grow these businesses beyond the subsistence level. The uncertainty of the sector means that long term goals fall victim to day-to-day struggles and often, the women are not able to even make enough to pay off their loans, plunging them into debt.

However, if these businesses were able to grow and formalise, this would be a real opportunity for generating social and economic change. Not only would this create stable income for the women (90% of which the women re-invest back into their families and community), but it would also create jobs for other Cambodians within the formal sector, affording them more security and stability as well as a safer working environment. Our vision is that as women grow and formalise their businesses, they will focus on expanding this opportunity to other women in particular, giving more and more women access to safer, more secure incomes and by extension more independence and decision-making power. So whilst certainly the informal sector will continue to be pervasive in Cambodia for the foreseeable future, growing women’s businesses into small-medium formal enterprises is one way to offer a better quality of life to more Cambodians.

– Written by Prue Allen, WhyDev Fellow at SHE Investments