Challenge 2. Lack of formal registration and operating licences
The lack of formal registration and operating licences can become a challenge in some countries because it prevents MSMEs from accessing government support programmes. It can also hinder them from sourcing legal and affordable timber. Furthermore, informal MSMEs tend to use undocumented timber and do not monitor inputs and outputs of the raw materials used. This lack of traceability impedes MSME participation in legal supply chains and makes it difficult for governments to monitor compliance with timber legality requirements in the domestic market.
The EFI pilots used two approaches to address the lack of formal registration and operating licences. The first approach, tested in Laos, focused on building capacity for input-output monitoring (IOM) to support unregistered MSMEs in meeting business registration and licensing requirements. The second approach, currently under testing in Myanmar, focuses on connecting MSMEs to government support services, such as special timber auctions, as an incentive to formalise.
A key lesson learnt from the first approach is that informal MSMEs can comply with formalisation requirements if specialised support is provided to them. To this end, using basic concepts of inventory control9 as the entry point in explaining IOM was effective. It helped MSMEs understand that tracing and documenting the timber used is a key step for complying with national regulations. Where such capacity is built, interest in formal registration and licensing of operations increases.
On the second approach, preliminary lessons learnt indicate that bringing MSME concerns to policy-makers’ attention can encourage reforms that ease their access to legal and affordable timber. Access to timber (as well as other forms of government support, such as subsidised loans and training) is an incentive for MSMEs to formalise. However, MSMEs often do not understand the benefits of formalisation nor the business registration process. Where they exist, associations can help raise awareness and support MSMEs in formalising and accessing support services. To this end, capacity must be built to strengthen the associations. Furthermore, business registration requirements must be clearly explained to association leaders to enable information sharing with their members.