CIC – DIME Impact Evaluation Workshop, November 2012 Francisco Campos (with Markus Goldstein and David Mckenzie) 1 BUSINESS REGISTRATION IMPACT EVALUATION (BRIE) IN MALAWI

 WB Doing Business:  “Informality comes at a cost: firms in the informal sector typically grow more slowly, have poorer access to credit and employ fewer workers.”  Are these relationships between informality and enterprise performance causal? Or is formality only something that successful businesses can afford? 2 Background

 Informal sector represents 93% of the non-farm small scale enterprises in Malawi.  The process of business registration is centralized in one city and manual.  It takes 39 days to become formal according to the 2012 Doing Business Report (18 days in Zambia).  Becoming formal also involves (2) registering for taxes and (3) paying licenses at the City Assembly  These 3 institutions have systems that do not speak with each other 3 Informality in Malawi

4 Becoming formal in Malawi (1) Business registration (2) Registration for taxes(3) City assembly license

5 Benefits of registration Benefits Business Registration Certificate (BRC) Taxpayer's Identification Number (TPIN) Open business bank accountyes Access to bank loan for businessyes Register land in the name of businessyesneeded if seller of land Export licenseyes Access to government contracts or procurement system Ok for contracts, not the system yes Eligibility for government’s programsyes Malawian Chamber of Commerce (MCCCI)yes Invoices to customers for tax purposes yes

Preservation in electronic format of all manual historical records was completed by New Information System of business registration being prepared for launch at the Department of Registrar’s General (DRG) in late Technical staff at the DRG have undergone training in other Registries Revised Business Registration Bill, which accommodates for the electronic system and targeting of formalization, has been approved by Parliament and in process to be implemented 6 BESTAP reform

7 BESTAP Reform

 The major objective of the IE is to assess whether becoming formal improves enterprise performance. If one was to make it very easy for firms to formalize, what are the impacts of becoming formal?  IE will answer the following questions: 1.Does the benefits of business registration outweigh the costs? 2.Do both male and female-owned enterprises gain equally from registration? Are the effects of registration heterogeneous on other dimensions? 3.Does helping to separate business from household money through business bank accounts adds value to the formality? 8 Impact Evaluation

1.Help in registering the business  Intervention tries to make registration totally costless  For firms in the treatment group, we instruct them on the benefits of business registration, help them prepare the registration form, take the required photo, deliver their entire application to DRG, and pay the registration fee 2.Similarly, help in registering for taxes (obtain the TPIN) 3.Information sessions on the benefits of separating household and business money and offer business bank accounts (with NBS Bank) 9 Impact Evaluation Interventions

10 Impact Evaluation Design Sample of eligible businesses using a screening criteria (3,000) Costless Registration and information sessions + business bank account (1,200) Costless Registration (750) Costless Registration and TPIN (300) Control Group (750)

11 Mechanism for change (not exhaustive) Formality + Business bank account ActivitiesIntermediate Outcomes Impacts Access to Markets Increased turnover Increased profits Increased employment Lower harassment Access to Savings Access to Lending Better standards of living Mental separation of accounts Increased investment

12 Interventions take-up rates (preliminary figures) BRC aloneBRC +TPIN BRC TPIN BRC + Training + Business Bank Accounts BRC BBA IS BRC: Business Registration Certificate TPIN: Tax Payers Identification Number IS: Bank Information Sessions on separating household and business money BBA: Business Bank Accounts 84% 72% 68% 73% 71% 5%

13 Business Registration Interventions disaggregated by gender (preliminary figures) BRC aloneBRC +TPIN BRC + Training + Business Bank Accounts BRC: Business Registration Certificate TPIN: Tax Payers Identification Number 62% 77% FemaleMale 70% 75% 83% 85% FemaleMaleFemaleMale Business Registration Certificate Take-up

14 What’s next Midline survey I Midline survey II Endline survey Final results Report on take-up Activity Nov 12 – Dec 13 May – Jun 13 Dec 13 – Jan 14 Apr 14 Jan 13 When

Previous studies (Bruhn 2011, Klapper et al. 2006) focused on effects of entrance into formality New studies, which this is one is part of, on alternative ways of increasing registration (eg: De Mel et al. 2012), but focused on testing the effects on business performance Number of countries and studies (Miriam’s one for example) on accessing tax registration, this one includes business registration decoupled from tax This study also adds (i) African context, (ii) gender component, (iii) alternative methods of increasing formality, (iv) additionality of complementary interventions such as business bank accounts 15 What is unique about this study?

High-level reform can be better informed by micro data Government of Malawi requested support on identifying sales threshold of firms to target with compulsory registration Ex: Can public health data inform food regulations reform? Changes in regulations/standards to be sequenced with other actions Is change in regulations alone sufficient to change behavior? Does enforcement work or are incentives more effective? Ex: What is the added-value of introducing rewards to best health clinic on top of new inspections reform? Ex: Should the new bill be sequenced with increased information? 16 How does this study apply to me?

November BUSINESS REGISTRATION IMPACT EVALUATION (BRIE) IN MALAWI