The Informal Sector and Its Role in Bangladesh’s National Economy

Bangladesh’s economy is often celebrated for its growth in manufacturing, remittances, and export-oriented industries. However, beneath the formal economic structure lies a massive, vibrant, and often overlooked segment—the informal sector. In fact, the informal economy plays an essential role in driving employment, supporting livelihoods, and contributing to the country’s GDP.

According to the Bangladesh Bureau of Statistics (BBS), over 85% of the country’s workforce is employed in the informal sector, making it the backbone of the labor market. From street vendors and home-based garment workers to day laborers and small-scale traders, informal workers form an essential, though often invisible, layer of Bangladesh’s economic engine.

This article explores the nature of the informal sector in Bangladesh, its economic contribution, challenges, and the strategic role it plays in national development.

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What is the Informal Sector?

The informal sector refers to economic activities that are not regulated by the government, not taxed, and typically operate outside of formal labor laws or business licensing systems. Workers in this sector often lack:

• Written contracts

• Job security or social protection

• Legal recognition or access to financial services

• Benefits like pensions or paid leave

Despite this, they contribute immensely to household incomes, urban development, and consumer demand in both rural and urban Bangladesh.

Major Components of the Informal Economy in Bangladesh

1. Agriculture and Day Labor

   • Smallholder farmers, sharecroppers, and seasonal agricultural workers fall under this category.

   • Rural informal labor continues to be crucial for food security and export crops like jute or tea.

2. Urban Street Economy

   • Street hawkers, rickshaw pullers, food vendors, and informal transportation services.

   • This sector keeps urban consumption and micro-mobility systems running.

3. Home-Based and Cottage Industries

   • Small-scale garment production, handicrafts, and embroidery (nakshi kantha).

   • Often dominated by women, these industries enable income generation without migration.

4. Construction and Day-Wage Labor

   • Informal workers in building, infrastructure development, and real estate contribute significantly without contracts or safety nets.

5. Micro-Entrepreneurs and Traders

   • Corner stores (mudir dokan), informal grocery sellers, and unregistered online sellers have grown rapidly in recent years.

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Economic Contribution of the Informal Sector

Though difficult to precisely measure due to its unregistered nature, the informal sector is estimated to contribute around 30-40% of Bangladesh’s GDP. Key contributions include:

1. Employment Generation

The informal sector absorbs a large number of low-skilled and semi-skilled workers, offering them a means of subsistence in a country with limited formal job creation. It especially supports:

• Rural-to-urban migrants

• Women seeking flexible work

• Youth and those without formal education

2. Poverty Reduction

For many, informal work is the first step out of poverty, especially in the absence of social security programs. It plays a critical role in improving household resilience.

3. Entrepreneurship and Innovation

Informal businesses often respond faster to market needs, innovate frugally, and show resilience in economic downturns. They act as a breeding ground for micro-entrepreneurship.

4. Supply Chain Support

Even formal industries like textiles rely on informal labor—contract workers, tailors, and fabric dyers—for operations. The informal sector complements and sustains the formal economy.

Challenges Faced by the Informal Sector

Despite its economic significance, informal workers and businesses face numerous challenges:

• Lack of Access to Finance: Informal entrepreneurs struggle to get loans due to no credit history or collateral.

• No Legal Protection: Without contracts, workers are vulnerable to wage theft, exploitation, and unsafe work conditions.

• Limited Access to Markets: Informal sellers often operate in crowded, low-income areas and can’t scale operations easily.

• No Safety Net: Illness, accidents, or pandemics can instantly erase livelihoods due to the absence of health or income insurance.

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Informal Sector During COVID-19 and Beyond

The COVID-19 pandemic exposed the fragility of the informal sector. Lockdowns disrupted income for millions, pushing many into deeper poverty. However, it also accelerated digital transformation:

• Mobile money services (like bKash) helped informal workers receive aid.

• Online platforms enabled micro-sellers to reach customers via Facebook or WhatsApp.

• Community-based e-commerce began bridging the formal-informal divide.

Bangladesh’s informal economy is now evolving—digitizing, networking, and gaining visibility in the broader ecosystem.

Strategies to Strengthen the Informal Sector

Governments, NGOs, and the private sector are increasingly aware of the need to formalize or support the informal economy through inclusive policies:

1. Simplified Business Registration

One-window registration platforms and tax holidays can help micro-entrepreneurs transition into the formal economy.

2. Access to Microcredit and Financial Services

Fintech companies and microfinance institutions can provide loans with flexible terms.

3. Skills Development and Training

Programs like SEIP (Skills for Employment Investment Program) can upskill informal workers.

4. Social Protection Schemes

Policies that provide health coverage, accident insurance, or pensions can reduce vulnerability.

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Role of Agent Services in the Informal Economy

Agents can play a vital role in connecting the informal sector to global opportunities, such as:

• Sourcing local crafts or textiles for export buyers

• Validating cottage industry products for international trade

• Helping micro-entrepreneurs scale through branding or logistics support

Bangladesh-Agent.com connects local producers with foreign buyers, bridging the gap between informal talent and formal demand.

Conclusion

The informal sector is not just a safety net for Bangladesh’s poor—it is a critical driver of economic resilience, innovation, and employment. Recognizing its role, investing in its capabilities, and integrating it with the formal economy will be key to achieving inclusive growth under Vision 2041.

As Bangladesh transitions into a knowledge and export-driven economy, empowering the informal workforce through policies, partnerships, and platforms like Bangladesh-Agent.com will unlock their full potential—and the country’s.