Paper short abstract:

This paper critically discusses implications of commercial microfinance Institutions (CMFIs) in driving formalization of informal enterprises in Nigeria as a case of other developing and emerging countries. The research used Marx’s surplus value theoretical framework, particularly the exploitation of interest- bearing credit.

Paper long abstract:

Microfinance was introduced to fix the failure of credit market system, particularly as development tool to reduce poverty. Microfinance institutions (MFIs) gradually transformed from non-profit to for-profit model commercial microfinance institutions (CMFIs). The present MFIs client-base is referred to micro, small and medium enterprises (MSMEs).

Through the lens of Marx’s surplus value theory, this paper focus on implications of commercial microfinance in driving formalization of informal enterprises in Nigeria as a case of other developing economies.

MFIs are involved in the process financialization and formalization of informal enterprises. Financialization signifies the expansion of financial accumulation, based on changes in politics, economics, culture, politics and social relations (Mader, 2014). Whereas, formalization integrates identity, records and information of active poor entrepreneurs into digital financial system.

The methodology approach is critical realism. Identifying the necessary causal relation and mechanisms of various actors, as conditions for the emergence of the social phenomena (Sayer, 2000; Bhaskar, 2008). Actors within the microfinance institution sector in Nigeria are governance, strategic, operational, international, CMFIs, and beneficiaries. Quantitative and qualitative data including anecdotal evidence from the actors was analysed through the process of retroduction.

The findings reveal that informal enterprise overly dependent on high interest credit. Formalized informal enterprise owned by surplus population (underemployed and unemployed active poor) are exposed to further exploitation by credit capitalist within the commercial microfinance sector. In conclusion, this paper recommends further research on implications of formalization of informal enterprises within CMFIs sector as a developmental strategy towards poverty reduction.