Business Registration Impact Evaluation (BRIE) IN MalaWI

1. Business Registration Impact Evaluation (BRIE)IN MalaWI CIC – DIME Impact Evaluation Workshop, November 2012 Francisco Campos (with Markus Goldstein and David Mckenzie)

2. Background • 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?

3. Informality in Malawi • 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

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

5. Benefits of registration

6. BESTAP reform • Preservation in electronic format of all manual historical records was completed by 2011. • New Information System of business registration being prepared for launch at the Department of Registrar’s General (DRG) in late 2012. • 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

7. BESTAP Reform

8. Impact Evaluation • 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: • Does the benefits of business registration outweigh the costs? • Do both male and female-owned enterprises gain equally from registration? Are the effects of registration heterogeneous on other dimensions? • Does helping to separate business from household money through business bank accounts adds value to the formality?

9. Impact Evaluation Interventions • 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 • Similarly, help in registering for taxes (obtain the TPIN) • Information sessions on the benefits of separating household and business money and offer business bank accounts (with NBS Bank)

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) Impacts Activities Intermediate Outcomes Access to Markets Increased turnover Access to Lending Increased profits Formality + Business bank account Access to Savings Increased investment Increased employment Mental separation of accounts Better standards of living Lower harassment

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

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

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

15. What is unique about this study? • 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

16. How does this study apply to me? • 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?

17. Business Registration Impact Evaluation (BRIE)IN MalaWI November 2012