The informal sector is a defining feature of many economies, especially in low- and middle-income countries. It is a space where millions of people make their livelihoods—often outside the reach of regulation, taxation, and basic legal protections. For governments, the drive to formalize these businesses is both a policy imperative and a formidable challenge. Increasingly, analysts are finding that the International Standard Industrial Classification (ISIC) system provides a clear, data-driven lens through which to assess the progress and impact of formalization policies.
When informal businesses are incentivized or required to register, one of the first signs of success is a surge in microenterprise registrations, each tagged with an appropriate ISIC code. These codes, long the foundation of official economic statistics, suddenly become markers of newly formalized economic activity. Analysts and policymakers can track these trends over time, revealing where policies are working, where barriers remain, and how the shape of the economy is evolving.
Consider a city that implements a streamlined licensing process for street vendors—a common ISIC code here might be ISIC 4791 (Retail sale via stalls and markets). If the new policy is effective, business registries should show a marked increase in new registrations under this code in the months that follow. The pattern can be tracked not just in aggregate, but across neighborhoods or demographic groups, highlighting areas of greatest impact or remaining exclusion.
The value of this approach goes beyond mere counting. By layering ISIC-coded registration data with additional metrics—such as tax compliance, business survival rates, or access to credit—governments can measure whether formalization is translating into tangible benefits for microentrepreneurs. Are newly registered businesses receiving training or microfinance? Are they surviving and growing, or churning in and out of the system? Each answer is more meaningful when tied to the specific sectoral context provided by ISIC codes.
Best practices from around the world underscore the potential of ISIC-guided monitoring. In Peru, for example, a national drive to formalize the informal sector was paired with digital business registration platforms. By analyzing surges in ISIC-coded microenterprise registration, officials could pinpoint which policy tweaks—such as mobile registration kiosks or reduced fees—were most effective in bringing informal workers, like market vendors and moto-taxi drivers, into the formal economy. The result was not only better coverage but also a more nuanced understanding of where outreach and support were still lacking.
Similarly, in parts of West Africa, targeted incentives (tax holidays, simplified record-keeping, access to social security) were rolled out for informal traders and artisans. ISIC-coded trends in new business licenses provided a real-time dashboard of which groups were responding, and which sectors remained stubbornly outside the formal net. This feedback loop enabled rapid policy adjustment—expanding eligibility, tweaking communication strategies, or adding new services tailored to sector-specific needs.
For policymakers, the appeal of ISIC-based metrics is their flexibility and comparability. Whether the goal is to monitor formalization city-by-city, sector-by-sector, or year-on-year, ISIC codes provide a standardized backbone for analysis. They also allow for benchmarking against peer cities or countries, identifying innovation or lagging regions, and learning from successes elsewhere.
Of course, challenges remain. Not all informal businesses fit neatly into an existing ISIC code. Some operate across several activities or in niches not well captured by current classifications. Data quality depends on honest self-reporting and diligent registration practices—neither of which can be taken for granted, especially in contexts where trust in government is low or administrative capacity is stretched.
Moreover, formalization is only the first step. True economic inclusion requires ongoing support—access to finance, training, legal protection, and integration into formal supply chains. ISIC-coded registration trends, while powerful, must be complemented by follow-up data on business performance and entrepreneur well-being.
Despite these limitations, the benefits are clear. Programs that monitor ISIC-coded registration surges can act as early warning systems—flagging both successes and failures in real time. They help governments allocate resources, design sector-specific interventions, and justify further reforms to simplify, incentivize, or even mandate formalization. Perhaps most importantly, they bring the informal sector into the official narrative—recognizing its economic value and potential for growth.
Evaluating informal sector formalization through ISIC registration trends is more than a statistical exercise. It is about seeing—and supporting—the millions of microentrepreneurs who drive economic dynamism from below. As policies and systems evolve, ISIC will remain an essential tool for turning informal promise into formal progress, one registration at a time.