Informal sector

Question 1

What is the informal sector

Answer 1

The Informal Sector is defined as that part of the economy where economic activities are not under official control. Some transactions or organisations in the financial sector are not regulated by the Central Bank. This is referred to as the Informal Sector.

Question 2

What is the importance of the informal sector

Answer 2

1. It provides jobs and it reduces unemployment – The informal sector provides jobs and reduces unemployment, but in many cases, the jobs are low-paid and there is no job security.
2. It stimulates the growth of entrepreneurial activity – This sector facilitates the growth of entrepreneurial activity among the lower income groups, but the entrepreneurs might not abide by tax and labour regulations.

Question 3

What are some informal credit institutions?

Answer 3

1. Sou Sou – This is an informal arrangement where a small group of people contributes an equal fixed sum each week or month on payday to a common fund, called a ‘Pot’.
2. Money Lenders [Usurers] – In Caribbean societies, ‘money lenders’ or ‘usurers’ also used to conduct a fair amount of business. We might question how fair the business was, though. The usurers usually lent money at very high rates of interest to borrowers.

Question 4

What is the role of informal method of saving

Answer 4

Increased Savings – When a person becomes part of this type of savings method, he is forced to pay in an agreed amount on a regular basis.

Easy Access to Capital – This type of savings method, provides access to a relatively large sum of money that may have otherwise been difficult to obtain from a formal banking system. Thus, this sum of money will be able cover future expenses and emergency situations of the recipient.