The impact of climate change and coping strategies adopted by smallholder farmers in Bihar

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The River Ganges and its many tributaries are India’s cultural and economic lifeline. The mighty river originates in frozen glaciers in the northern Himalayas and empties into the Bay of Bengal to the east. As it descends to the ocean, its tributaries criss-cross several states, including the eastern Indian state of Bihar. The river network provides silt-rich soil and critical irrigation to the state and its neighbors. Yet climate change in recent decades has turned this blessing into a curse, increasing flooding in the Gangetic plains. Estimates indicate 45.24% of Bihar state’s area is flood-prone. North Bihar is more prone to flooding due to rainwater runoff from neighboring Nepal and fluvial flooding of the Gandak and Kosi rivers. The increasing heat and humidity intensify localized rainfall and thus risk pluvial flooding.

MSC conducted qualitative research to understand the needs, aspirations, perceptions, and behavior of smallholder farmers in Muzaffarpur and Khagaria—two districts most impacted by these climate change events.

In our focus groups and interviews, smallholder farmers unanimously stated that flooding is the worst weather hazard in their villages. Class-III floods caused due to congestion at the river confluence are the most damaging. Class-III floods last the entire monsoon season. They lead to waterlogging of low-lying farmlands, damage crops, and drain away the fertile topsoil when they recede.

The respondents in Muzaffarpur recalled the devastating 1987 floods and, more recently, the Class-III floods in 2020-21. In Khagaria, respondents recalled floods in 2002, 2004, 2007, and again in 2021 due to heavy rainfall in the region. The smallholder farmers also mentioned increasing humidity and the rise in cyclonic rainfall. Respondents in both districts noted heat waves in the past two years had also damaged crops.

“The dry spell is followed by heavy rains. The weather is becoming like that of Odisha and West Bengal—hot and humid.” – Sunaina Saran – Sarmaspur, Muzaffarpur, Bihar.

While flooding is the major climate hazard in our selected geographies, the impacts of slow-onset climate hazards were also evident in declining crop nutrients, increased incidences of pest attacks and pathogen infestation in crops and livestock, and declining health of the village populace. We examine these under six categories below.

Agriculture

The seasonality of flooding means that it most commonly damages Kharif crops, such as rice and maize. The erosion of topsoil strips away soil fertility and diminishes marginal yield from the application of fertilizers, risking spiraling and increasingly ineffective overuse of fertilizer. Farmers have attempted to maintain their income levels by resorting to planting short-duration, high-yielding vegetable crops and using hybrid seeds and heavy doses of chemicals. Moreover, the increasing incidence of pest infestations and pathogenic attacks as a result of the increased humidity has forced farmers to apply more pesticides.

Livestock

Farmers report increased diseases among cows like foot and mouth disease, mastitis, enteritis, hemorrhagic septicemia, and high fever. In response, they use more medicines on a prophylactic and curative basis. The excessive use of such chemicals in farming affects the nutritional quality of milk. But the higher mortality rate of cattle affects their income stream and leads to a loss of investments made in insemination, buying calves, veterinary fees, fodder, and other input costs.

Finances

Farmers are concerned about the declining marginal return from crops as they have to resort to more expensive hybrid seeds, grow perishable produce, and use more costly inputs, particularly fertilizer and pesticides. As a result, they report increased demand for credit from local moneylenders, self-help groups (SHGs), and microfinance institutions (MFIs) for consumption smoothing, and to make the necessary investments in the next agricultural cycle. Several respondents reported that their earnings declined while they exhausted existing savings.

Health

Incidences of health issues, such as fever, weakness, waterborne diseases, cough, cold, knee pain, and weak eyesight are reported to be increasingly common among villagers. Worsening physical health is seen by our respondents as the result of the decline in the nutritional quality of food from the over-application of fertilizers and pesticides. Furthermore, many reported increased emotional stress due to illness, injury, loss of physical and financial assets, and the uncertainty arising from the changeable weather patterns.

Migration

Respondents noted an increasing propensity among youth to migrate and work away from their family farms. However, we could not establish a correlation between changing weather patterns and this rising propensity to work in the non-farm sectors. Some of this migration is clearly due to reduced income from agriculture and the fragmentation of landholding due to inheritance norms. Yet much of this trend also arises from urbanization and exposure to digital media.

“The number of people engaged in agriculture has fallen over the years. Migration to cities has become common; for most families, at least one family member lives outside the village and sends money home. With current vegetable prices being as low as INR 2 per kilo, farming is no longer profitable, so having alternate family income sources is crucial.” – Focus group in Itha Rasulnagar village, Muzaffarpur, Bihar. 

Infrastructure

Severe floods, such as those in 1987 and 2007, have caused significant damage to houses, especially mud houses, roads, and electricity transmission structures. However, the more frequent pluvial floods that take longer to clear make access to services a major challenge.

So how do smallholder farmers respond to climate events, such as floods?

We discussed adaptation strategies used by farmers before, during, and after floods. A clear pattern emerged that the table below summarizes using our six categories.

Our next blog in this series uses persona analysis to explore the traits of resilient and vulnerable smallholder farmers and examine how gender influences the experience and impact of climate events.

Traits of resilient and vulnerable smallholder farmers

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“We hear about heavy rainfall two or three days prior. We prepare a kit with ration, tarp, torches, candles, medicines, and other essentials.”—Manoj Kumar, 45, Gannipur Bejha

“We would like to have sufficient savings to deal with the damage post floods, but it is unlikely. So we have to resort to moneylenders.”—Nand Kumar, 61, Gannipur Bejha

Our previous blog looked at the impact of climate change and coping strategies adopted by smallholder farmers in Bihar. This blog uses persona analysis to explore the traits of resilient and vulnerable smallholder farmers, and examine how gender influences the experience and impact of climate events. We highlight three of our respondents from MSC’s qualitative research in two flood-prone districts of northern Bihar.

Anamika Kumari highlights how education and knowledge can empower smallholder farmers to adopt important adaptation strategies. These strategies are enabled and strengthened by Anamika’s understanding of, and access to, a range of formal and informal financial services, as well as the internet.

Vandana Devi is not quite as resilient as Anamika. She is acutely aware of the changing weather patterns and knows that these result from climate change. However, she has a limited understanding of the underlying dynamics, such as its causes and likely effects. But she is keen to learn. Like Anamika, she has started growing vegetables to offset losses to her main rice and maize crops, which the floods and pests often damage. Vandana also has good access to formal and informal financial services and uses these as a key part of her adaptation strategy. Her husband has migrated for work and remits money to her each month, allowing her to save and take loans. However, she does not use the internet or digital payments.

In contrast, Mohammad Saqlin is vulnerable to the impact of climate change. He is poorly educated and has a limited understanding of climate change or new adaptive farming methods. He sees little support for agriculture or a future in it. He is keen to migrate to Allahabad, Lucknow, Kolkata, or perhaps Delhi for work. Despite his poor understanding of new farming practices, Mohammad has already started cultivating vegetables using hybrid seeds to reduce the risk associated with the Kharif season crops of rice and maize. He has a bank account but no savings, and he depends on local moneylenders for his liquidity needs. Like Vandana, he does not use the internet either.

While our female personae are more resilient than Mohammad, they face specific and gendered challenges when responding to climate events. The physical impact of a climate hazard is the same for both genders. However, uneven exposure to hazards and socioeconomic inequalities result in a disproportionate level of climate vulnerability among men and women.

The unpaid household work of women becomes significantly more arduous during floods. Wet wood and biomass used for fuel mean that cooking meals for the family will take more time. Furthermore, waterborne diseases mean that women must boil their family drinking water to purify it—an additional responsibility prolonged by damp fuels. Women also report increased caregiving activities due to heightened incidences of waterborne diseases and disrupted sanitation facilities. They also note that it takes more effort to prepare and feed dry fodder to livestock stranded above the waters.

The disruption of sanitation facilities further complicates these increased household chores, which affects women disproportionately and exposes them to infections. Women also report increased stress as they struggle to repay loans taken from MFIs and SHGs during and after floods. Respondents noted that MFIs are not empathetic toward their borrowers and will collect their money by all means. Increased physical labor, an increased risk of infections, and the stress of managing household finances are likely to threaten women’s long-term health.

In some cases, women relocate to their maternal homes or to relatives’ houses with their children and elderly relatives to try to ensure their safety.

Of course, men are also affected by floods. Men help their family members relocate and arrange food, medicines, and shelter during the floods. They brave water-logged roads to access these necessities and, when necessary, take the risk of borrowing from moneylenders. They report increased mental stress due to incidences of diseases, loss of assets, and uncertainty of recovery from the calamity.

Thus, during floods, women tend to play a defensive role, seeking to ensure the sustenance and health of family members. In contrast, men play the role of providers, reflecting their social norm-derived greater ability to travel and interact outside the household and village. We did not observe any shift in the roles and responsibilities of women and men. Essentially, these lines of response are pre-defined by societal norms.

Our next and final blog in the series will examine the seven key factors that determine the resilience and adaptive ability of smallholder farmers in Bihar.

Enhancing resilience of smallholder farmers against climate change—can parametric agricultural insurance make a difference?

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In its sixth assessment report, the Intergovernmental Panel on Climate Change (IPCC) raised alarms for the agriculture sector, especially in the developing world. Many parts of Africa[1] will suffer from the extreme oscillation between agricultural drought and pluvial flooding. Heavy precipitation across South and Southeast Asia[2] will likely lead to intense floods and prolonged inundation. Meanwhile, farmers in small island nations will continue to experience spatially varying yet decreased precipitation.

The economic impacts of climate change on agriculture will worsen further, as around 75% of agricultural risks worldwide remain uninsured[3]. The vast majority of those risks mitigated through suitable insurance or other means are in developed countries. Less than 3% of smallholders in Sub-Saharan Africa and 22% in Asia have insurance protection for their crops.[4]

Smallholder farmers across the developing world face several hurdles to adopting insurance, affecting scale-up efforts by providers. These adverse factors include high costs, complex process of application and claim settlement, the lack of disclosure of indemnity terms, and a low claim settlement rates of traditional indemnity-based agriculture insurance products.

Can parametric insurance make a difference? Evidence from our engagements

Parametric insurance offers the advantages of objectivity, simplicity, transparency, and certainty of claim settlement ver traditional crop insurance products. It requires less effort and costs for underwriting, administration, and processing of claims.

Parametric insurance has started gaining prominence across the developing world. Weather-based crop insurance schemes (WBICS) are among the most common forms of parametric insurance. In Kenya, seed production company Agri SeedCo offers a Replanting Guarantee scheme (RGS) in collaboration with Safaricom and Acre Africa—an insurance surveyor. The service assures farmers of a refund for seeds through M-PESA if the original seed pack fails to germinate due to inadequate rainfall during the sowing season. Agri SeedCo uses public satellite data over a 10 by 10-kilometer grid from the National Oceanic and Atmospheric Administration (NOAA) to determine if a failure in germination resulted from drought.

Similarly, the Green Delta Insurance Company in Bangladesh has launched weather-based index insurance products in collaboration with food processors, seed companies, microfinance companies for cassava, hybrid rice, and tomato farmers.

In India, The Government of India supports the Restructured Weather Based Crop Insurance Scheme (RWBCIS), a form of parametric insurance. It protects insured farmers and producers against the likelihood of financial loss due to anticipated crop loss resulting from adverse weather conditions. Under RWBCIS, weather parameters are used as a proxy for crop yields to compensate the insured. In RWBCIS, the insurer develops a claim payout structure based on the extent of clients’ economic losses. The payout is triggered when the weather parameter is breached. To date, more than 1.5 million farmers have enrolled for RWBCIS and benefited from it.

MSC has tracked the development of agriculture insurance and microinsurance across the developing world for many years. We have conducted several studies and worked with multiple governments, insurers, and international agencies, supporting product design and implementation of agricultural insurance schemes for smallholders. We have also evaluated, designed, and supported various agricultural insurance schemes in Asia and Africa.

Our first-hand experiences with parametric insurance products in Kenya and Ethiopia helped us appreciate the advantage of parametric crop insurance over traditional insurance schemes. While working on an assignment to develop a community-led promotion model for the Replanting Guarantee scheme of Acre Kenya, we saw how simple and intuitive it is for maize farmers to secure their crops against germination failure. Even though the technology backbone of the service is sophisticated, end users are entirely relieved of any physical or mental efforts throughout enrolment and claim of damages.

We know that multi-peril crop insurance works well in some situations. We have seen it at work in our feasibility study of the crop insurance scheme in Tanzania and the evaluation of the Pradhan Mantri Fasal Bima Yojana in India. This type of insurance works particularly well in subsidized insurance programs for staple crops with vast acreage in a region. Traditional multi-peril products are effective because they provide comprehensive coverage over the entire lifecycle of these staple crops and make it easier to assess productivity losses in staple crops. However, these products are also costly, so governments or international agencies either introduce or support these schemes to ensure food security. Our study in Bihar, India revealed that smallholder farmers do not trust the effectiveness of the scheme due to its length claim assessment and settlement process which is based on loss assessment over a wide area. In our experience, beneficiaries of these insurance schemes also fail to understand the benefits of the schemes. Several questions remain unresolved—around their value, cost-benefit analysis, and claims process.

Challenges and opportunities

Parametric crop insurance has its advantages. However, not every country or region has the requisite infrastructure to implement it. Parametric insurance requires access to advanced real-time weather and other parametric data over large territories. It also requires sophisticated technology and expertise, such as actuaries, to model the risks.

Another challenge for parametric insurance is its reliance on technologies, such as satellite imagery, which may not provide accurate data at all times. For example, Normalized Difference Vegetation Index (NDVI) may provide false results. NDVI relies on the color of vegetation as the sole parameter to determine if a crop is healthy. It throws up false positives if crops appear standing, healthy, and green yet may be infested by pests and pathogens. Such crops may fail to produce grains later. However, services like NDVI can serve as effective tools to measure the impact of drought. Alongside other technologies, more solutions can emerge to support multi-peril parametric insurance products.

So, how can we make parametric insurance inclusive? How can smallholders across Least Developed Countries (LDCs) and Small Island Developing States (SIDS) avail of such effective risk transfer instruments? And how can we overcome technological barriers and make parametric insurance further accurate, reliable, accessible, and affordable?

Driving the implementation and adoption of parametric insurance will require cooperation at the systems level through complementing solutions. A wide range of stakeholders have a vital role in the acceleration and scale of suitable low-cost and acceptable parametric insurance solutions, particularly for smallholder producers. Such stakeholders include governments, insurers, reinsurers, weather and satellite data providers, InsurTechs and AgTechs, philanthropic organizations, and multilateral institutions. Catalytic capital from global climate change funds, such as the Green Climate Fund, Global Environment Facility, the Adaptation Fund, programs such as the Global Shield Against Climate Risks, and from other risk capital, will help insurance companies develop parametric insurance products through available meteorological data, climate risk models, and technology.

Parametric insurance solutions can achieve outcomes that are not possible with conventional insurance products. Equally importantly, inclusive parametric insurance products can enhance the resilience of smallholders against the vagaries of climate change. Parametric insurance solutions can complement traditional insurance programs. Together, they can push the envelope of insurability.

Therefore, governments, development agencies, insurers, AgTechs, InsurTechs, and other stakeholders need to collaborate effectively to develop and strengthen parametric insurance products and enabling technologies and infrastructure. Community-level influencers such as progressive farmers, village leaders, and social workers have a vital role in creating awareness among smallholders, overcoming their fears and myths, marketing insurance, and driving demand and usage. Communities, too, need to be an integral part of a multi-stakeholder and systems-driven approach to make insurance inclusive.

[1] IPCC – Sixth assessment report – Regional fact sheet- Africa, August 2021

[2] IPCC- Sixth assessment report – Regional fact sheet- Asia, August 2021

[3] SwissRe and FAO data

[4] Agricultural insurance for smallholder farmers, GSMA, 2020

Unpacking the ground realities—what are we beginning to learn about women-owned businesses in Bangladesh?

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We had to reflect on these questions multiple times as we tried to define women business owners for the Women Business Diaries research in Bangladesh.

During the conceptualization and preparation phase of Women Business Diaries research, we considered these questions and picked “control of the business” as the defining criteria of ownership. However, we also captured data on the registration of the business.

We decided to use four objective proxy indicators on decision-making and control to define “women business owners:”

Among all women-run businesses, how many of them are women-owned?

We asked these questions to ~800 enterprises in eight districts[1] across four divisions[2] of Bangladesh. About 85% of those enterprises were women-run. Here is what we learned:

  1. Women own only a portion of women-managed businesses.

Only 53% of women who managed businesses were business owners, as per our definition. However, among men, this proportion is 84%. The gender gap increased further in decision-making on loans and business management. We observed the following:

  • 65% of women and 95% of men make final decisions on day-to-day business management activities, such as purchasing supplies;
  • 59% of women and 93% of men make final major business management decisions, such as investing or changing suppliers, opening new outlets, and starting new business lines;
  • 59% of women and 87% of men make a final decision regarding taking a loan for business;
  • 70% of women and 95% of men decide how to use the money they earn from the business.
  1. Six in 10 women-owned businesses lack the required documentation.

We checked the availability of the most basic documentation—a trading license—an indicator of formalization in Bangladesh. About 60% of the women business owners, who fit our definition, lacked a trading license. This proportion is just 19% for men.

  1. A third of the businesses licensed in a woman’s name are not women-owned.

About 33% of all businesses with a trading license in the name of a woman are not really owned by the woman, as per our definition. This proportion is lower for men. Out of all the businesses with a trade license in the name of a man, the man is not the actual owner in only 14% of the cases.

Evidence shows that women-owned businesses are not a homogenous group. We find that:

  1. Locations influence the choice of enterprise by women: Our sample highlighted significant geographic differences in the businesses that women own. In the Khulna division, 35% of women-owned businesses were agri- or livestock-based, whereas only 4% fell into these categories in the Rangpur division. In contrast, service-related enterprises dominate the women-owned businesses in Dhaka by 56% and 50% in Chattogram. About 66% of women-owned businesses are retail or wholesale trading in the Rangpur division.

Open questions: Are the differences because the geo-political and social dynamics in the regions restrict certain business types and promote other business types, or is it something else? We will unpack these questions during our Financial Diaries research.

  1. Business management practices vary across business types: Maintaining an inventory ledger is most common among agri- and livestock-based businesses (30%) and least common among manufacturing businesses (19%). Some form of bookkeeping or maintaining accounts is most common in the trading business (80%) and least common in the manufacturing business (33%).

Why do manufacturing businesses have such limited records and bookkeeping? That is another question for us to unpack.

What challenges do women-owned businesses face?

From the early discussions with our diarists, our findings reinforce that women-run businesses face disproportionate barriers due to gender-discriminatory social and cultural norms. They have limited access to financial services, poor access to information, little technical support on business development, and smaller business networks. Some other barriers that women business owners face include the following:

[1] Dhaka, Munshiganj, Chattogram, Feni, Rangpur, Nilphamari, Khulna, Satkhira

[2] Dhaka, Chattogram, Rangpur, Khulna

Limited access to finance, mainly due to a lack of collaterals and institutional perceptions that view women business owners as high-risk, leads to under-capitalization of businesses, negatively impacting their income and living standards. During their entrepreneurial journey, women face the usual range of gaps in financial services that include:

We will delve more deeply into these as the research progresses.

Further, social norms also pose a challenge for women-owned businesses. The socially accepted gender roles, such as unpaid care work, make it mandatory for women to balance household duties with their enterprises. Moreover, women are expected to prioritize unpaid care work at home over income generation.

Many unanswered questions

This note is a sneak peek into the lives of women business owners in Bangladesh. However, so many questions are still unanswered. For example, the Bangladesh market offers no definitive way to describe whether a business is formal. Further, ownership of a trading license is the most commonly used metric for business ownership. But does having a trading license help a business? If yes, then how? Does it ensure more access to finance? What about the tax implications? Does the cost of being formal outweigh its benefits?

Stay tuned as we attempt to answer these questions and more in the future editions of our “The big smalls of Bangladesh” insights series.

Please write to us at rahul.chatterjee@dev.microsave.net to share your thoughts about the insights presented in this edition or send us a burning question in the Bangladesh market.

Women business diaries: Unpacking a 360-degree view of women-run businesses in Bangladesh

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Shumi and Sajia—two entrepreneurs of a similar profile but with very different stories

Shumi Akhter, 38, runs a dairy business in rural Munshiganj. About five years ago, she came across a YouTube video on dairy farming that caught her attention. She was so intrigued that she started researching online and reached out to her local markets to explore the potential of a dairy business in her area. She spoke to prospective customers, such as local sweetmeat shops and dairy cooperatives. Once she had finalized a few in-principle deals with them, she invested BDT 400,000 (USD 3,928) from the monthly remittances her husband sends from Singapore, where he works as an electrical mechanic. She started the business with three milch cows.

Sajia Akhter, 40, owns a beauty parlor in Dhaka, which she started around 12 years ago. Her motivation to start the business was to establish a source of income for her family, as her husband lacked secure employment or a well-established business. Her capital to start the business was around BDT 150,000 (USD 1,473), out of which she borrowed BDT 100,000 (USD 982) from her sister and used the remaining amount from her savings. She achieved limited success, but her business did not grow significantly, and she operates the finances and management of the enterprise on her own. Her only help is her daughter, who learned beauty skills from her mother and assisted her during work hours. Sajia does not have big ambitions for the business—she wants to be able to repay her loans and have enough money left to run the parlor.

Shumi and Sajia are among the ~600,000 women-run cottage or micro, small, and medium enterprises (CMSMEs) in Bangladesh. Sajia’s story represents the perils of women-run businesses, and Shumi’s story is a beacon of hope. But what is the real problem? What is holding up a seasoned entrepreneur like Sajia, and what enabled Shumi to grow her business so fast? The most commonly prescribed “silver bullets” are access to finance and skills development. But we must understand other essential factors affecting WMSEs to understand the whole picture.

A 360-degree view of the women business owners’ lives

Little evidence is available on how women-owned businesses are run. The impact of social norms restricting women’s agency is also unclear. Hypotheses, such as men making business decisions for WMSEs and women preferring different types of businesses compared to men, are emerging only now due to research on microenterprises. In this context, coupled with the motivation to reduce access to finance barriers for women entrepreneurs, MSC has started a Women business diaries-based action research in Bangladesh, with support from the Gates Foundation. We will track all financial and nonfinancial transactions of ~500 women entrepreneurs.

MSC will take a comprehensive view of the lives of women business owners, including their financial life, business management, digital life, and personal life. Figure 1 summarizes the different dimensions of women entrepreneurs’ life that we will capture in this research. We will collaborate with financial institutions to use insights from this action research to develop gender-centric financial products to help WMSEs in Bangladesh.

We have a variety of women-run businesses in our sample, including apparel businesses, grocery shops, eateries, artisans, tailors, beauty parlor owners, and agriculture and livestock-related businesses. We use MSC’s DatIn app to track these WMSEs’ daily financial transactions, such as income, expenses, savings, and credit. Further, we use digital technologies to analyze the collected data. We also conduct regular in-depth interviews and IVR-based surveys to understand the reasons behind their financial decisions and different aspects of their lives.

What is in store?

We have completed profiling the diarists, and the diarists have started to record their daily financial transactions. Over time, a fuller picture of the lives of WMSEs will emerge as the data starts pouring in. We will share the insights through a series of knowledge pieces called “The big smalls of Bangladesh—Insights on women-owned enterprises in Bangladesh.” The different editions of this series will provide insights into the lives of women entrepreneurs. These insights will further help start a conversation on the need for a contextualized multidimensional strategy to help WMSEs.

Watch this space as we dive deeper into the lives of these WMSEs.

Transitioning the informal economy to a formal one

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We express our sincere gratitude for the support from the Deputy Minister Ms. Lenny Rosalin from the Ministry of Women Empowerment and Child Protection, Indonesia on this engagement. However, the views expressed in this blog does not necessarily represent the view of the Ministry. 

This blog is the last of our three-part series on women’s participation in the digital economy. It is an outcome of MSC’s work with the Ministry of Women Empowerment and Child Protection in Indonesia for the G20 Ministerial Conference for Women Empowerment. Read earlier blogs in this series  .

The informal economy provides jobs for 61% of the global workforce. This large workforce has low skills and productivity levels, irregular income, unsafe working conditions, and lacks access to credit. As seen during the economic fallout of COVID-19, a large informal workforce leads to a vulnerable population because workers lack adequate social safety nets.

Developing countries often prioritize the formalization of enterprises in their MSME development policies. The benefits of formalization include increased access to credit, higher productivity, and better social protection, while governments gain from a higher tax base.

Despite these apparent benefits, why does informality persist?

In this final blog, we explore the need to modulate our approach to formalization and how the digital economy can enable this process.

Align the policy imperatives of formalization with the needs of the informal economy

Informality in low- and middle-income countries persists, partly due to the lack of formal employment opportunities in the economy. In addition, the compliance costs associated with formalization incentivize firms to remain small and informal. Further, the imperatives of competition and globalization force certain employers, such as in the garment industry, to convert formal jobs with benefits into informal piece-rate work with no benefits.

In addition, women in the informal economy must adjust to the realities shaped by social norms and domestic responsibilities that control the nature of economic opportunities available to them. These challenges ensure that formalization is not a choice for most women.

Therefore, policy objectives should reduce rigidity around the formalization process. Policies should focus on supporting incremental formalization that offers tangible benefits regarding access to credit, information, and markets at a low cost.

The rise of digital platform models in the digital economy offers a unique opportunity to support the informal sector’s transition to a more formal workforce. We discuss the unique attributes of digital platform work and the possibilities for greater formalization, focusing on women in the informal economy.

The digital economy can lead to achieving greater formalization

Digital gig platforms serve as intermediaries that connect service providers and customers at scale. These platforms operate in informal sectors, such as taxi and ride-hailing services, delivery services, home services, domestic help, and beauty services.

The business model of digital platforms offers an on-ramp to greater formalization in the workforce. We outline four areas where digital platforms can lower the barriers to the formalization of women’s work.

  1. Availability of data: As an aggregator of services, digital platforms are repositories of data on the workforce and their economic engagements.  Access to platform data can address the challenge of low visibility over informal employment, which impedes the government’s ability to design better policies for the informal economy.
  2. Skilling of the workforce: The business models of digital platforms and their success depends on high levels of consistent customer service. Platforms invest in standardizing and upskilling workers to meet higher standards. The experience and association with platform companies can lead to a better perception of women’s skills.
  3. Access to formal financial services: Platform work enables formalization efforts because workers receive payouts regularly into their bank accounts or digital wallets. Building financial histories increases their chances of accessing financial services, such as credit and insurance.
  4. Increased productivity: Workers can access better services on digital platforms, such as job discovery and matching services. These platforms allow informal workers to find more work compared to a traditional offline market.

However, despite this potential, multiple   across countries highlight how platform workers struggle to access fair pay, fair working conditions, and fair contracts.

G20 member countries must focus on a multipronged policy approach to ensure the growth of the digital economy leads to more formalization. We discuss some potential principles of such policy measures.

Principles that can support women informal workers on digital platforms

  1. Use data to make informed choices on support to workers

As Galperin and Randolph suggest, policymakers and regulators should forge partnerships with platforms to access this data to understand the work and workers better. This data can then inform policies on the classification of workers, their roles, the responsibilities of the platforms toward workers, and the role of the government, among other areas.

  1. Governments should encourage the creation of an ecosystem of service providers that can support women workers’ efforts to formalize

An important consideration for women workers and entrepreneurs to become more formal is the move’s cost-effectiveness. They face particular challenges as they interact with platforms in the digital economy. Women need increased access to various services as they grow within the digital economy. These services can include skill and capacity building, technology products, taxation and compliance management, and other nonfinancial business development support.

Policymakers should create an enabling ecosystem of service providers, civil society organizations, and individuals to effectively offer these products and services to women workers that lower formalization costs. An example of such an enabling ecosystem is the Women Entrepreneurship HUB (WE HUB), run by the Government of Telangana in India. The initiative gathers stakeholders, such as government departments, corporates, industry, academia, and individuals, as mentors to support female entrepreneurs.

  1. Support the development of alternative economic models for the digital economy

Women collectives and cooperatives have long been part of developmental strategies for women’s empowerment. These networks allow women to collectively benefit from increased economic interactions and lower the chances of failure.

Digital technologies have helped create an alternative model for digital platforms that workers can own and manage. These platforms offer a different version of growth-centering worker benefits. Governments need to support measures that promote the development of such alternate models.

The digital economy offers an opportunity to bring many informal workers into the formal economy. This increase in formalization will help develop a skilled and productive workforce and improve the economic resilience of workers. However, realizing a truly inclusive digital economy will depend on the worker-centric transition of the informal economy to an inclusive formal one.

This three-part blog series discussed the issues and challenges of women’s participation in the digital economy. We argue that governments, private sector players, and other stakeholders must understand the nature of women’s economic interaction in the informal economy and   customized support that increases their ability to continue in the labor force. Our recommendations can help develop a more formal, inclusive, and resilient digital economy.