Challenges and Initiatives to Formalization: The Case of Palestinian Female Home-Based Businesses

1. Challenges and Initiatives to Formalization: The Case of Palestinian Female Home-Based Businesses Grace Khoury Wojdan Farraj Suhail Sultan

2. Research Objectives • To identify factors that • hold back performance • hinder formalization • of Palestinian HBBs of women entrepreneurs • We argue that these women do not experience underperformance but rather constrained performance as a result of institutional factors • To fill the research gap concerning Informal entrepreneurship & Female HBBs in Palestine

3. Background • Typical entrepreneurship obstacles: • political • lack of financial support • lack of governmental policies • inadequate infrastructure • Women entrepreneurs in developing countries: • Institutional context: • weak institutions • Social context: • Gender-specific discrimination • restrictions on: • mobility and interaction • working outside their homes

4. Background • HBBs are driven by necessity • Overlooked in business-oriented policies • Claims of underperformance by female-owned firms are more representative of unfair gender biases rather than well-observed facts (joy and control over life, social and economic contribution )

5. Literature Review Institutional Theory Regulatory institutions & socio-cultural norms constrain women’s entrepreneurial performance Challenges encompass institutional and social context: • lack of gender-sensitive policies to support women entrepreneurship in legal, financial or other aspects

6. How formal and informal sectors are linked – 4 Perspectives • Dualists: few linkages, governments should providecredit, business development services, basic infrastructure and social services to operators in the informal sector • Structuralists: both sectors are fundamentally linked, government should regulate the commercial and employment relationship between the two sectors

7. How formal and informal sectors are linked – 4 Perspectives • Legalists: operate in the informal economy to avoid rules and regulations Governments should simplify bureaucratic procedures to promote informal enterprises to register and become formal • Voluntarists: to avoid fees and other costs such as taxes, and should therefore be brought under the formal regulatory environment

8. Methodology • Qualitative and exploratory design • 38 Semi-structured interviews: • 28 female entrepreneurs from 3 districts • 10 respondents: policy-makers, representatives, and officials in ministries and related NGOs • 2 Focus groups: • 8 Recently formalized female entrepreneurs • 3 Women cooperatives that provide support • Non-probability convenience or opportunity sample was selected

9. Growth Enablers :Findings • Interviewees’ intent to expand and formalize: 86% experienced growth, 53% no sufficient space “The capacity building I received through the women forum has developed my design and marketing skills” “Without the loan, I could not have expanded my business nor provide employment opportunities, for which I am satisfied”

10. Performance and Challenges • Satisfied with their business performance “As long as my children have completed their higher education there will be no need for me to continue supporting the family” • Challenging factors are of an institutional nature (both informal and formal)

11. Informal CONSTRAINTS: (socio-cultural) • (39 per cent) • Cooperative commented: • ‘Culture and harsh judgment of society strongly discourage women from doing what they need to do to register their business’ • One official: • “Formalization isa confirmation that woman-owned businesses are profitable; in a culture where women are held accountable to be transparent to husbands or other family members”

12. Formal CONSTRAINTS: (weak institutions, tax policies, support services) • Fear of taxation (36 per cent) “Why should I move to a commercial premises and leave the convenience of working from my home and pay taxes?” • Lack of support services (29 per cent) “I would love someone to help me exhibit my products or provide training in design and export. Would registration provide such benefits?” • Work/Life balance • Unaware of benefits of formalizing • Marketing opportunities, recognition, exhibitions, bidding

13. Challenges (18 per cent) • Access to finance • bank collateral needed for business loans • Complexity and regulations • of registration processes, rent contract or proof of ownership, inheritance laws • Political instability • Ease of movement • roadblocks, checkpoints, separation wall, etc.

14. Other Findings • “Competition among various stakeholders on receiving donor funds allocated to women economic empowerment” NGO • The diversion of focus of existing NGOs • This situation reinforces redundancy of programs and limits the impact on the economy and society at large - “There are no policies to protect women HBBs, enabling owners of large businesses to take advantage of them” Ministry Gender unit - “Forcing these women to formalize could lead to fatal outcomes” Official

15. Successful initiatives:Initiative 1: Encouraging Registration • Donor-funded initiative aimed at establishing ten gender units in the Chambers of Commerce • Six classification schemes for business registration in cooperation with the Ministry of National Economy and an economic empowerment NGO • Example: Grade Four registration allows businesses with investment capital of $5000 or less to formalize their business in exchange for a small annual registration fee of 20 JD • Registered for at least three years can nominate themselves to join the Federation membership board and become involved in setting the policies of the Chamber in their district • Although 1500 registered their informal business, women tend to renew their registration only before receiving a specific service they need from the Federation such as participating in an exhibition out of the country

16. Initiative 2: Capacity Building & Access to finance • Partnership agreement between a women’s forum, a major national bank and a donor • Select active female-owned HBBs to: • participate in a mini MBA program for six months • prepare a viable business plan • open a bank account • obtain zero-interest business loans without a need for a guarantor • Eight female-owned HBBs were encouraged to register

17. Initiative 3: Gender Sensitive Policy & Financing • MOU with a national bank and Ministry of Labour to provide: • Zero-interest loans to 15 projects with a total capital investment of $150,000 • A quota of one-third of these projects is dedicated to women enterprises with capital investment of less than $10,000

18. Initiative 4: Simplifying Registration & Initiating Incentives • Donor-funded initiative implemented by a local NGO: • The ‘One Stop Shop’: • To provide women with all the services and information they need for formalizing their business in one place

19. Recommendations • Combination of dualist and legalist perspectives on formalization • Cooperative framework & joint efforts from all relevant stakeholders is necessary describing the role of each stakeholder • Complementary roles in addressing female entrepreneurship • Participatory efforts should be coordinated among public, relevant ministries, municipalities, chambers of commerce (instating gender-sensitive policies, incentives and quotas to ensure that women entrepreneurs are provided ample opportunities) • Private sectors (mentoring, access to financial resources, networking opportunities, sponsor exhibitions, marketing support) • NGOs and INGOs or donors (focus on original mandate, organized and integrated, rather than competitive and imitated)