Investigating informality in the financing of culture and creative businesses in Kenya: A Case Study of the Uhuru Textiles Market in Nairobi.

Contributors: George Gachara, George Aloo Karanja, Wakiuru Njuguna, Nehemiah Kabugi

Section one

Case Description: This paper seeks to understand the nature of financing in the informal sector with a focus on Uhuru Market, an informal market ecosystem in Nairobi.
Geographic area of research: Kenya.
Cultural economy sector focus: Fashion (textile production).

Methodology for the investigation
Desk research of a report generated from a study conducted in 2019 and 2020 at Uhuru Market by HEVA to better understand the financial, infrastructure and governance needs of the traders of the market. A sample size of 220 traders was developed following a process of stratified sampling. Focus group discussions were held to elaborate on the findings of the main study. For the purposes of this report, additional online desk research was conducted to contextualise the findings of the Uhuru Market Report.


Many business commentators and reputable business writers of major business publications often describe informal businesses in the global south, Asia, Latin America and Africa only through the lenses of informality, a concept which has not only become monolithic but the definitive characteristic of businesses in our side of the world.

In these presentations, among the amiable commentators’ informality is seen as either a euphemism for unregulated businesses which are usually run by people unemployed in the formal sector of the economy, with low specialisation, low capitalization, low productivity, and with few protections on one hand, and unethical and illegal businesses which operate “ under the radar,” always “circumventing the law through loopholes” promoting “chaotic business environments with open secrets, unwritten rules and hidden practices of getting things done.”

From this vantage point, formalisation is the panacea — that informal businesses van only be motivated by nefarious ends such as tax dodging, rather than enlightened and legitimate business strategy consisting of a cost-benefit evaluation, the difficulty, corruption and inefficiency in formalizing and the harsh time penalty on small ventures.

These sets of assumptions crystalize into a mainstream suspicion towards informal businesses thereby limiting their interest in investigating and developing prototypes which would help build the necessary understanding and with it, introduce transparency which is critical to the underwriting responsive public policies, encourage investment and growth.

In this paper, through a case study approach on the Uhuru textiles market in Nairobi, we have attempted to dissuade ourselves from any fixed notions on informality and informal business conditions through asking numerous questions, addressing these questions with a degree of courageous honesty as well as in allowing the insights from this inquiry to confront and testing our assumptions.

What does informality look like?

Without falling into the self-indulging business school bias that we often and easily resort to — the unthinking transfer and application of western economic epistemic models, it is important to remember to consider the cultural context of businesses in the many global south societies. In Kenya, as in most African societies, informality has been and remains ubiquitous to all human activities and formal engagements are only recently introduced alongside formal governments, religion, schooling and a regulated private sector.

According to Ananya Roy in her publication Slumdog Cities: Rethinking Subaltern Urbanism, informality is ‘the overlapping and intersecting relations between authorised and unauthorised, or between regulated and unregulated activities.’

This paper seems to favor Ananya Roy’s articulation as far as it attempts to acknowledge the complexity of the relations, the range of permissions and impact of location as far as informality is concerned.

According to the World Bank (January 2016), informal businesses (the Jua Kali sector) make up 95% of all enterprises in Kenya, while contributing 87.2% of all employment according to the Kenya National Bureau of Statistics (2014). This is indicative of the pervasiveness of informality in Kenya and indeed, in most African countries. If the implications of these statistics were to be truly considered, then, the question of informality would not be viewed as a fringe market condition but as the dominant economic epistemology.

Why Uhuru Market?
Since our inception, we recognized the tremendous opportunity for wealth, jobs and dignity in the textiles sector in Kenya. We also accepted that most of the businesses remained small and in their early stage of growth as a result of numerous constraints including competitiveness issues driven by expensive imported fabrics and inputs, as well as shrinking domestic market as a result of the second-hand clothes dumping by western countries.

After many years of investing in local private fashion brands, it was time to move out of our comfort zone and lead an inquiry into the micro and small garments venture which serve the domestic market and which form a majority of businesses in the sector.

Complexity of the industry
From our vantage point, it was clear that informality was not a uniform experience and that it was important to inquire and build understanding on layers and intersections that constitute the specific type of informality in our sector.

It is our assumption that informality is caused and sustained by the low level of market sophistication which is symptomatic of low investment appetite leaving the practitioner to remain at the early stage business growth level for a longtime.

It is also our assumption that low consumer demand as a result of price distortion due to the damping of cheap second-hand clothing from developed nations, on the one hand and on the other, the high cost of inefficiencies which has a negative impact on the competitiveness of the products — limited fabric sourcing, high costs of labor, limited design offering, high costs of production, etc., in the value-chain.

High cost of formalisation
Without a graduated or disaggregated approach to formalization by level of business growth, most early-stage businesses in the textiles sector cannot justify the cost of formalization — which translates to reduction of capital available for business activities, negative impact on set up time, and limited benefits from the investment.

It is common for a small business to be required to undertake business registration as a limited liability company or a sole proprietorship at the company registry which is a costly endeavor, it exposes the business to additional recurrent expenses for statutory filings and delays set up as it takes more than a month.

Additionally, this registration comes with statutory tax registration requirements, along with a costly investment in a digital tax register infrastructure, as well as the registration of each employee to the public pension and medical schemes.

Subsequently, and before setting up the business must buy an annual city license, along with the fire license, as well as the national bureau of standards license for each product line.

All these are the requirements before operations. A whole set of requirements — legal fillings, contracts, accounting, insurance, etc., continue to increase the cost of doing business and impact on profitability.

Trader stall in Uhuru Market

According to the World Bank in their report on Gender Equality and Development (2012), 76% of informal businesses are female owned, who at the same time suffer the penalty / burden of care work for their families, as well as facing unequal treatment by markets and institutions.

It is true that most women are unable to access formal credit due to low access to fixed assets which can be mobilised as security, often resorting to informal lending — which can be limited to own savings or exploitative in its cost.

It is also true that women often accumulate capital at a slower rate than the men in the same trade, due to the time penalty they have to endure in order to take care of their families and young children.

These are additional factors that contribute, reinforce and sustain the state of informality in the textiles industry, even for businesses that would like to adopt a level of formalization.

Findings: What did we discover in our inquiry?

Access to finance remains an important consideration for a majority small and medium businesses and especially those in the creative industries. A majority of businesses in the culture and creative industry are often capitalized by their owners through personal savings, loans from family and leveraging personal assets for informal debt.

In order for these businesses to take advantage of new business opportunities, they often require additional capital for operations — especially during peak business seasons, as well as to finance growth — new market entry, new product development, machinery, supplies etc. Some businesses with a certain level of formalization can access short term debt but many resorts to retained earnings and informal debt to finance growth. It is clear that without additional capital most of the businesses remain at the precarious early stage.

Limited enterprise growth (Göttingen, 2013) is a factor of “market forces, social-political factors” but most importantly “finance availability.” As a result of limited possibilities to upgrade operations and scale their productive activities, informal enterprises are unable to improve the returns, and to support overall growth.

In order to finance their day-to-day operational costs as well as their growth, traders at Uhuru Market have developed the following solutions:

1. Traders Savings and Credit Cooperative:
The traders cooperative is registered by Sacco Societies Regulatory Authority has a membership of 250 traders at Uhuru Market out of the total of about 1,000 traders (25%) at the market.

The cooperative has an open membership recruitment process and offers numerous benefits to members loans at favourable interest rates, flexible payment periods and are able to meet larger loans relative to members own savings and contributions.

The members of this cooperative also collectively own assets such as business equipment for lease, and land.

Trader Health Registration
  • This cooperative is a formal financing mechanism in a cooperative model. It is both registered and is regulated.
  • To access credit one has to be a member, having saved consistently for 6 months and can only access credit up to 3 times their savings.

Informal Savings and Credit Groups (Merry go round)
Merry go rounds are informal savings and lending groups composed of individual traders / members ranging from 10–20 individuals. These groups form their own savings and lending rules.

Often, the members are required to save a fixed amount on a daily, weekly or monthly basis. The collected contributions are then either handed out to members as loans with favourable interest rates or revolving grants to each member, without the obligation to pay back.

The most common practice is the lump sum grant given out to each member at a time, on a rotational basis, on a monthly basis. This approach does not build the capital and does not leverage members’ contributions over time. This mechanism is able to meet the one time, short term financing needs of the members but has a limitation in its capacity due to size of savings and the number of members, as well as how long it takes before a member can be eligible for another grant.


  • This informal mechanism suffered the limitations of informality as it is dependent on the members’ own social relationships.
  • The reliance on social contracts and trust made it easy to access financing but the limitation of the mechanism cannot deliver the benefits of scale, leverage and business integration.

Mobile Loans
Mobile lending digital applications on mobile phones have become an easy source of credit for Kenyans who don’t have accounts with banks and other traditional financial institutions, or the regular income needed to borrow from such establishments.

According to the Central Bank of Kenya in the report in Financial Access (2019) financial inclusion in Kenya rose from 26.7% in 2006 to 82.9% in 2019 in Kenya, driven largely by the growth of mobile money. According to a digital credit report (FSD 2019) established that 13.6% of Kenyans had borrowed loans from a digital lender, citing their convenience and ease of access.

At Uhuru Market, 8% of the traders had reported using mobile loans as a source of business and personal finance. Most prefer this source of credit as it provides instant cash — short turnaround time from application to disbursement, often with no requirement to collateralize the facility.


  • These platforms offer the most expensive loans in the market by charging as high as 400% per annum interest rates. This has led to high indebtedness among the users of these platforms.

Social political factors affecting access to finance?

Since the cooperative model was the favorite and seemed more responsive to the traders in this ecosystem, we sort to investigate which other factors common to the market cluster as a result of their unique financing mechanism:

1. Social-cultural factors
A cooperative movement is a member driven institution which has high returns on the ownership and agency of its members. Similarly, because of these characteristics the cooperative can be vulnerable to numerous perception issues including but not limited to exclusiveness — in this case the main institution is seen by some as being exclusive along tribe, gender and age lines, which limits its appeal to potential members.

2. Political challenges
Since the leadership of the cooperative have been the same group of people who are accused of non-inclusion, along with a lack of effort to change this perception through regular elections, there is general apprehension towards this institution causing many traders to join other cooperatives outside the market. This has a negative impact on the growth of the capital pool for the cooperative.

What can be done to improve the prospects of this cooperative model?

1. Rebuilding trust, expanding membership and better communication by those in leadership to their members and we as non-members.

2. Development of competitive financial products to leverage on the understanding of the business cycles at the market as well as to leverage the existing business relationships.

3. Developing innovative products that can be accessed in groups, to benefit the ‘merry-go-round schemes and collect their savings, increase their pool of resources and leverage their savings for the cooperatives.

4. Increase efficiency by adopting digital practices and due-diligence for lending to reduce defaults and therefore pass on the efficiency gains to the members.

5. Leverage formal relationships to increase the available pool of capital available for lending activity to the traders, so that there is enough financing to meet the business needs during peak seasons (school uniform season, holiday season etc.).


HEVA would like to thank The British Council and PEC. This project is undertaken by the PEC International Council and supported by the British Council. The PEC International Council is a network of leading policy and creative economy practitioners from across the world. The group is convened by The British Council and is an international advisory body to the Creative Industries Policy and Evidence Centre (PEC), which is led by Nesta.



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