1. ‘Journeys to Formalisation’
A model for legitimising cash-in-hand businesses
Global Microcredit Summit
16th November 2011
www.community-links.org

2. Community Links
• Multi-purpose charity
• East London
• 35 years
• 2 founding principles:
– Work with people
– Innovation
• 4 Strategic Aims
– Raising aspirations
– Tackling poverty
– Extending opportunity
– Strengthening communities
www.community-links.org

3. A Picture of East London
• Hosting Olympics in 2012
• Reception area for London
– People make what they can and move on
– High population churn (20% each year)
• Hyper-diverse population mix (over 170 languages spoken)
• Most deprived boroughs in UK
– High unemployment, low education attainment, poor health, high crime, overcrowding
• People living close to the edge
• Yet there is plenty of hope, hard work and entrepreneurialism
www.community-links.org

4. Community Links and the Informal Economy
• 10 years + focus on informal work
and poverty:
• Developed a wider evidence base
– 25 reports into relationship
between poverty and cash-in-
hand work
– People work cash-in-hand out of
need not greed
– Takes them out of absolute
poverty, whilst trapping them in
relative poverty
• Supported policy development
– Her Majesty Revenue & Customs
(Tax) e.g. Hidden Economy
Group
– Dept for Work & Pensions
(Welfare Benefits) e.g. Welfare
Reform
• Run lobbying campaigns
– ‘Need NOT Greed’
www.community-links.org

5. About Cash-in-Hand Work
Definition
• Economic activity hidden from the state for tax, benefit or
employment law purposes, but legal in all other respects
Facts & Figures
• 12.3% / ₤120bn of UK’s GDP
• Over 2 million workers
• Av. 20% in deprived boroughs
www.community-links.org

6. Policy Context in the UK
In the UK there is ‘no’:
• Overarching strategy and plan
• Lead government department
• Agreed policy message
This results in:
• Disagreement between
government departments
• Contradictory policy, approaches
and messages
• ‘Punishment’ approach not a
‘supportive’ approach
• No service to formalise people’s
informal economic activity
www.community-links.org

7. Current Climate in the UK
• UK in the grip of the current global financial crisis
• Soaring unemployment
– 1 in 5 young people unemployed
• Large public sector cuts (funding and staff)
• Coalition government ideological move towards a smaller state
– Removal of Business Links, Regional Development Agencies, and
reduction in funding for business support & advice, incl. micro-finance
• UK has history of long term (and generational) unemployment and
welfare benefits
– 4 in 10 children in London live in poverty
• Government has an obligation to tackle poverty and worklessness,
through its employment department (Dept. for Work & Pensions)
• Enterprise is part of the growth agenda for UK plc
• ‘Legalisation’ of informal businesses must be included
www.community-links.org

8. Journeys to
Formalisation
A model for legitimising cash-in-hand
businesses
www.community-links.org

9. Objectives
1. To learn how local organisations support people to move
from the ‘hidden’ economy to the ‘formal’ economy
2. To develop a viable model which can be shared and
replicated
3. To lobby UK government to endorse this model
www.community-links.org

10. Research Method
• Interviews with 10 organisations (staff and clients) from
across the UK over 2 years
• Development of the Model
• Creating the environment for change through
discussions with private sector and government about
implementation and policy
www.community-links.org

11. The Model
www.community-links.org

12. Process of Formalisation for Self Employment
Outre Early Supp Busin Exit
ach Advic ort ess Advi
from e with Supp ce
and perso ort
referr Formal
Informal nal
al Enterprise
Enterprise financ
es
No client commitment Client commitment to formalise
Trust of formal institutions grows over time
Individualized service, flexibility to set times and targets, process may take 5 years
Discretion over reporting informal activity
www.community-links.org

13. Stage 1: Outreach and Referral
Send advisors into the community to foster interest in
formalising residents’ informal trading by:
• Running group workshops or individual drop-ins in
community settings (centres, clubs, churches, the street)
• Building relationships with community workers,
community leaders and groups to raise awareness and
encourage referrals to the service
www.community-links.org

14. Stage 2: Early Advice
Advice is offered on a confidential, no-expectation of disclosure or
commitment basis, via meetings that aim to:
• Stress the benefits of formalisation: social, emotional and financial
• Foster a desire to formalise, without pressure
• Be practical: offering flexible meeting times and locations
• Identify barriers to formalisation
– fear, literacy, low self-confidence, low formal qualifications, language,
childcare, etc.
• Garner trust with supportive hints and tips helping the informal trader
today:
– Marketing, health & safety, training courses, construction certification
• These small steps may make apparent, in practice, the benefits of
formalisation
www.community-links.org

15. “Most people want to formalise, it is
survival. Most people don’t want to be
looking over their shoulders, fearful.
People want peace of mind.”
“It’s really showing them that in a lot
of ways they’re often disadvantaging
themselves by not declaring their
business.”
“It depends on rapport with the
individual and if you don’t get it at the
beginning you don’t go anywhere.”
www.community-links.org

16. Stage 3: Support with Personal Issues and
Finances
• Support with straightening out personal finances
– E.g. housing costs and benefits
– with a mutual commitment towards the process based on full
disclosure of personal circumstances
• Understand and address their personal issues
– E.g. literacy, numeracy, low self-esteem and confidence
– referrals to appropriate support organisations
• Understand and address wider support needs that, if
resolved, allows the client to focus on their business
– E.g. Childcare, poor health, benefits, housing, certification etc…
www.community-links.org

17. Stage 4: Business formalisation and
Development Support
Planning towards formalisation, with a mutual commitment towards the
process, would include:
• Agreeing a plan of formalisation
– including small steps, a guided timeline, tasks, targets etc…
• Practically supporting the clients to formalise
– E.g. register as self-employed; obtain licenses or permits
• Assessing businesses strengths and weaknesses, and then
agreeing a plan for business improvement:
– Administration; operations; costs and pricing; exploring local customer
bases and possible expansion; R&D; marketing; finance and funding
• Encourage peer support
– Clients encouraged to support / trade with each other via small groups
and networking events
– Staff, supervisor and partners ‘case support’ meetings to pool staff skills
for optimal support
www.community-links.org

18. “8 people were involved in helping
these people to formalise, that was
interesting. They [each] had to win
my trust.”
“It has taken a lot of time to build the
networks with other agencies. The
referral route is easier [now]… it is
actually specialised support [they
offer].”
“We get all the customers together
that might benefit from talking to
each other and sharing
experiences.”
www.community-links.org

19. Advisor Capabilities
Understanding
of the benefits
system;
housing, tax
laws;
regulatory
Sympathetic requirements
Experienced
to the view
and qualified
that informal
in start-up;
work is a
business and
legitimate
employment
livelihood
support
strategy
Advisor
Capabilities
Strong
Strong
interpersonal
understanding
skills,
of the
responsive
interrelated
and non-
nature of
judgmental,
barriers of
Able to inspire trust
poverty
engage
collaboratively
with relevant
agencies
www.community-links.org

20. Stage 5: Exit Support
Continued support for a smooth and sustainable exit from
the service includes:
• Advisors contact clients
– regularly (daily, monthly, informal and formal intervals, e.g. 6
month review)
– Via face-to-face, telephone, texts, e-mail
– For a minimum of 18 months and a maximum of 30 months
– For any
• additional business needs
• ongoing support needs
www.community-links.org

21. Case Study
Thomas, male, mid-40’s, self-employed, micro-credit client
Tom lost his job Became self-employed Took micro-loan
through illness gardener / landscaper for tools
& marketing
Illness reoccurred, Helped by micro-credit Grew business over
business developed organisation to formalise: 6-7 month, but not
cash-flow problems registered business, legal / tax compliant,
opened bank account scared of
being caught
Bank closed
his account,
and told him to Went back to micro-credit
go to doorstep lender, organisation,
with v. high APR re-started business again
www.community-links.org

22. Attributes
Empathy Rapport Non-judgement Understanding Collaboration Experience
of advice/
support
Components
of advice/ Meeting Expanding
personal Training Finances Registration
support the market
needs
Awareness Eroding Networking
of benefit barriers Premises Marketing & contacts
Informal Enterprise
Formal Enterprise
Engagement,
Outreach &
referral
Ongoing relationship management & tailored development plan
Developing the relationship Providing business support Enabling stability & growth
Phase 1 Phase 2
www.community-links.org Phase 3

23. Recommendations
• A genuine cross-departmental government commitment
to implement a model of formalisation.
– Initial commitment from government departments: DWP, HMRC
and BIS
• Government design an implementation strategy for
formalisation initiatives across the UK
• Key characteristics should be:
– a trusting and respectful relationship between advisors and
clients
– adviser discretion
– flexibility on statutory obligations to disclose
www.community-links.org

24. Organisations delivering the Formalisation
Model require:
• Extended funding (5 years)
• Funding for outreach services
• Discretionary powers to not disclose personal
information about clients informal work
• A focus on Outcomes not Process
www.community-links.org

25. Clients seeking to Formalise require:
• A payment model for welfare benefits that aids
formalisation of self employment through new Universal
Credit system
• More financial institutions catering to this market:
– Start-up Loans - most informal clients don’t have starting capital
– Growth loans - up to £2,000 to support micro and small
businesses.
– Softer conditions - e.g. lower interest rates than those offered by
conventional financial institutions, with longer re-payment
arrangements (c.3-5 years)
– Coupled with practical formalisation support
www.community-links.org

26. Questions & Discussion
Discussion points:
• What can we learn from
each other?
• What is your
government’s agenda
to formalisation?
• What can we do at EU
& Global level to push
for change?
www.community-links.org

27. Please Contact
Aaron Barbour
Head of linksUK
Community Links
105 Barking Road, London, UK E16 4HQ
++44 20 7473 9666 (direct line)
aaron.barbour@community-links.org
www.community-links.org
www.community-links.org