APEC: Formalisation-to-Practice — Scaling MSME Productivity through Bundled Support
SDG 8: Decent Work and Economic Growth | SDG 9: Industry, Innovation and Infrastructure | SDG 10: Reduced Inequalities | SDG 17: Partnerships for the Goals
Ministry of Micro, Small and Medium Enterprises| NITI Aayog
The APEC report, Study on the Effects of Business Formalization Programs on the Productivity and Long-Term Survival of Micro and Small Enterprises mentions that legal registration alone seldom changes a firm’s trajectory unless accompanied by instruments that facilitate compliance, liquidity, and market access . Drawing on evidence from Australia, Canada, Chile, Mexico, and Peru, the study identifies that while 59.5% of beneficiary firms report revenue growth after participating in support programs, job creation typically lags as firms prioritize stabilizing cash flow before hiring. The findings signal a shift from “registration-only” reforms to integrated service bundles that move firms from permit to practice.
Strategic Pillars of the “Formalization-to-Practice” Model The report outlines a comprehensive architecture for effective formalization through five core strategic pillars:
Regulatory Simplification and Interoperability: Entry through simplified, one-stop digital gateways is essential, but its effectiveness depends on institutional interoperability—the ability of registries, tax, and payment systems to “talk” to each other to reduce transaction costs.
Guided Compliance and Hybrid Delivery: For microenterprises and first-time formalizers, digital-first platforms must be paired with human-supported onboarding to navigate technical tax terminology and sectoral permits.
Liquidity Smoothing and Milestone-Based Finance: Access to pre-approved, guarantee-backed working capital—linked to the adoption of e-invoicing or digital payroll—helps small firms mitigate cash-flow volatility and reinvest in operations.
Credible Demand Generation: Formalization must unlock immediate commercial benefits, such as participation in public procurement, e-commerce marketplaces, and business fairs, which transform temporary revenue increases into repeatable sales.
Capability Building and Post-Registration Aftercare: Sustaining compliance requires ongoing advisory services and managerial training to reduce errors and prevent firms from backsliding into informality.
What is “Economic Formalization” in the context of MSME development? Economic formalization refers to the stage where a firm, beyond just legal registration and operational compliance, gains effective access to and uses formal financial services, digital payments, and modern value chains. While legal formalization focuses on getting a Tax ID or license, economic formalization ensures the firm can transact with modern buyers who require invoices and build a digital transaction history that lenders use to approve credit without traditional collateral.
Policy Relevance
The APEC study marks a transition from bureaucratic formalisation to functional economic integration.
Mainstreaming “Bundled” Services: Just as APEC economies found that registration alone underperforms, India must ensure Udyam registration acts as an automatic gateway to GST onboarding, digital payments, and pre-approved credit.
Implementing Hybrid Delivery Models: The report’s success with “digital-first but human-supported” models is highly relevant for India, where leveraging Common Service Centres (CSCs) can bridge the digital literacy gap for microenterprises during formalization.
Incentivizing Gender-Responsive Policies: The significant barriers faced by women-led MSMEs in India—such as limited time and finance—mirror APEC findings, justifying the need for targeted financing and flexible training formats like Chile’s Capital Pionera.
Strengthening Institutional Interoperability: Standardizing procedures across Central and State governments can reduce the “fragmented mandates” that currently increase compliance costs for Indian MSMEs.
Leveraging Data for Precision Policy: India’s push for e-invoicing and GSTN integration aligns with the report’s recommendation to treat data as “core infrastructure,” enabling better monitoring of firm survival and proactive credit targeting.
Milestone-Based Finance: Linking working capital approvals directly to digital transaction history (e.g., UPI or TReDS) can convert India’s high “credit gap” into sustainable liquidity.
Sectoral Tailoring: Support must distinguish between early-stage startups needing coaching and mature firms requiring access to public procurement and export markets.
Follow the full report here: Effects of Business Formalization Programs | APEC SMEWG