Formalisation has long been hailed as a pathway to business growth, stability, and access to greater opportunities. In theory, when small and micro-enterprises register officially, they gain visibility, access to finance, protection, and the chance to scale.
Despite the Nigerian government’s ongoing efforts to promote business formalisation, millions of micro and small enterprises continue to operate outside the formal economy.
According to Moniepoint’s Informal Economy Report 2025, a significant number of business owners see little incentive to register their enterprises. For them, formality offers no immediate advantage compared to the realities of survival-driven entrepreneurship.
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These businesses, often run by individuals in small communities and local markets, prioritise daily income over paperwork, perceiving business registration as a distant milestone rather than a necessary step toward growth, leaving a critical gap in Nigeria’s economic development.
According to experts, the low rate of business registration among micro and small enterprises has prevented many job-creating firms from accessing the financial systems, markets, and support structures necessary to grow. But the reasons behind this persistent informality go beyond mere reluctance, they reflect deep-rooted realities in Nigeria’s business culture and economic landscape.
Here Are Some Reasons Why:
Informality as the Default
For many small business owners across Nigeria, informality is not a conscious act of resistance to regulation. Rather, it is the default mode of operation. These entrepreneurs often run their businesses within tightly knit communities, guided by cultural norms and a focus on day-to-day survival. The concept of registration rarely crosses their minds, as survival, not formality, remains the core motivation.
Survival Over Structure
Most informal businesses are born out of necessity. Faced with unemployment and economic uncertainty, many Nigerians start micro-enterprises as a means of survival. These ventures typically begin as one-person operations focused on meeting basic needs. Formalisation only becomes a consideration when the business grows beyond subsistence level, a milestone many may never reach.
The Perceived Lack of Value
Another major deterrent is perception. Many informal business owners believe registering their businesses offers little to no immediate benefit. They view registration as a distant goal, one meant for larger, more established enterprises. Until they see clear and tangible advantages, such as access to loans or contracts, many entrepreneurs see no reason to go through the process.
Cost and Complexity Fears
There’s also the assumption that formalisation is expensive and bureaucratic. With limited awareness of simplified registration processes or government support programs, many small operators assume it will cost too much or take too long. These misconceptions often discourage them from taking the first step toward formality.
As shared in the report, Dr. Dotun Olowoporoku, Managing Partner at Ventures Platform, believes that formalisation can only succeed when policymakers make it cheaper, simpler, and more beneficial than remaining informal.
“Today, registering with the CAC or FIRS is still viewed as a burden rather than a benefit,” he said. “Policymakers can change this by creating digital one-stop shops where business registration, tax filing, and access to support programs are integrated.”
Dr. Olowoporoku recommends offering two to three years of tax holidays or simplified presumptive taxes for nano-businesses earning under N250,000 monthly. He added that this approach would help reduce what he calls the ‘tax trap’ — the fear among 89% of informal operators that registration will expose them to unaffordable tax obligations.
He further emphasized that simplicity is key. A tiered registration system that scales obligations to business revenue, coupled with tax rebates for digital adoption (such as reduced levies for POS-enabled businesses), could transform formalisation from a cost burden into a growth accelerator.
A tiered registration framework allows small traders and micro-firms to register with minimal requirements and zero or low fees for an initial probationary period. As they grow and cross income thresholds, they can easily upgrade to higher tiers. This model not only eases onboarding but also provides flexibility for entrepreneurs transitioning from the informal to the formal economy.
Notably, the recent regulatory reforms also offer hope. New frameworks such as the Nigerian Insurance Industry Reform Act (NIIRA) 2025 and amendments to the Banks and Other Financial Institutions Act (BOFIA) aim to strengthen consumer protection, simplify compliance, and encourage micro-insurance uptake.
By reducing compliance costs and embedding tangible benefits like access to credit, pensions, and social protection within formalisation programs, these reforms make informal business participation financially attractive.
The Way Forward
The message is clear, to drive formalisation, Nigeria must make it cheaper, faster, and more rewarding to join the system than to stay outside it.
Simplified registration, targeted tax incentives, and better education about the benefits of formalisation could help shift millions of micro-enterprises from survival mode to sustainable growth, unlocking the potential of informal businesses in the process.