Methodology

The Pathways for Formalization Program is seeking to have its concept note approval on a new innovative methodology on measuring business formalization from the Bank of Ghana, the leading financial institution in Ghana for formulating and implementing monetary policy, the nation’s leading measure of the stabilization of the value of the currency within and outside Ghana. 

"Nearly all small business owners are left out of current economic markets due to high cost and complexity," said She Grows It Founder, Managing Director and  Chair of the Informal-to-Formal Enterprise Working Group in Ghana, Dr. Ashley Milton. "Yet formalization of business would increase tax mobilization amongst this demographic of business owners and provide owners with the needed transparency to help them grow, acquire, and retain HR and financial capital necessary to sustain their enterprise. Finding solutions to these challenges are key to our program's success."

The Pathways to Formalization Program (PFP), a joint venture between She Grows It (SGI) and the Ghana Inclusive Development Research Network (GIDRN), is a new program to address tax compliance through MSME business formalization, providing enterprises an opportunity to gain critical knowledge and transferable skills that have a positive impact on the overall business environment, financial returns, and on business and governance.   

More specifically, the program helps small business owners access previously inaccessible educational and training resources that enhance these enterprises' participation in economic and financial markets. The Pathways to Formalization Program provides business owners resources to implement formalization-friendly business practices that increase the transparency of operations, the efficiency of operations, readiness for financial investment, and tax compliance. Measurement of the business ecosystem formality is then calculated based on tax mobilization rates amongst this demographic, compared to unenrolled businesses, rather than more time-intensive traditional business formalization programs. 

With a focus on creating higher integrity within the Ghanaian business ecosystem, SGI and GIDRN, as members of the Informal-to-Formal Enterprise Working Group, have been working to review and validate that this new approach and methodology are robust and creditable. Companies will be provided with verified Readiness for Financial Investment (RFI) Scores and a Community License to Operate (CLO) Score, a new environmental and social governance scoring system that aligns with the Paris Agreement.

“The Pathways to Formalization Program is a great initiative that can help small- and micro, small, and medium-sized enterprises advance critically important business management and standardization practices that will contribute to more inclusive economic growth,” said Dr. Mamudu Akugdugu, Associate Professor of Agriculture Economics, National Coordinator for GIDRN, and co-chair of the Informal-to-Formal Enterprise Working Group. “These business owners have had a hard time accessing traditional sources of finance, and this methodology has the promise of opening up new pathways to finance MSME growth and development, which is both exciting and timely.”

By innovating this design for this new methodology that accommodates the constraints of MSME owners, the Pathways to Formalization Program team has developed unique elements that not only help increase education of business owners but also strengthen approaches to ESG (Environmental, Social and Governance) business measurements for projects globally, including:

• Applicability across a wide range of business management practices, taking a  broad landscape-scale approach that captures impacts from various potential industries and sectors;

• Removal of a modeled baseline, by using publically available data from the National Board for Small Scale Industries (NBSSI) to set a real-time baseline (or control group);

• Simplified and standardized approaches to additionality and formalization of enterprise improvement methods. 

“The Pathways to Formalization  Program team is committed to producing a workable methodology to engage Ghana’s 160,000 MSMEs to achieve formalization and to become tax compliant. SGI and GIDRN’s latest research on economic inclusion in Ghana suggests tech-based education solutions, specifically for MSMEs and micro-finance institutions, provide the greatest opportunity to realize business formalization and associated tax compliance benefits immediately,” says Moustapha Seck, CEO of Fluid Finance Technologies, a software technology company that educates microfinance institutions to increase their reach amongst their target audiences. “Improved business practices and management tools like those developed by Fluid and deployed as part of the Pathways to Formalization Strategy are unlocking the action we need now to deliver measurable economic benefits. Utilizing research, education, and technology presents a huge potential to scale in ten years to meet the national economic growth and inclusion goals.”

SGI and GIDRN are currently piloting this program in Ghana to ensure the approach works seamlessly for business owners while maintaining credibility. SGI and GIDRN will continue working with the Bank of Ghana on the methodology approval process, with the goal of achieving final approval in 2022.

If you are interested in learning more about how your company can work with business owners to help improve operational procedures, sign up here for the Pathways to Formalization Program newsletter.

Interested in learning more about the Pathways to Formalization Program? If you are a business owner interested in the program, visit our business owner portal. If you are interested in being a mentor business in the Pathways Program as part of your corporate social responsibility strategy, please reach out to Lale Ceylan at info@shegrowsit.