There is an increasing realization that despite the large share of the informal sector, very little is known about it and that this lapse is too glaring to be ignored. We use primary data from a unique set of entries in daily financial diaries maintained for a period of 11 months (September 2008 to August 2009) by seven households engaged in informal business involving peddling of vessels and other products in Ramanagaram, Karnataka, India. Combining the quantitative financial diaries data with focussed group discussions, we are able to generate thick descriptions of these informal businesses. This paper first makes an in-depth analysis of their cash flows, in an attempt to illustrate the issues faced by the informal sector pertaining to their modes of business and their credit-needs, and pointing out some of the reasons why they cannot expand. We concentrate on one particular financial product touted as tailored for such businesses – microcredit. By dovetailing the cash inflows from business to microcredit repayments, we are able to show that a standardized microfinance loan was unsuited to their business cash flows. More importantly, we are able to show that informal businesses are complex entities that are marked by seasonality, not only due to the characteristics of the varied nature of the businesses but also due to the circumstances of households running them. We conclude that uniform, “cookie-cutter” products pushed by micro finance institutions (MFIs), while serving the cash-flow needs of the MFIs, are at odds with the needs of their clients. If the informal sector is to be vibrant enough to support the economic lives of the poor, and if we really need a billion “bare-foot” entrepreneurs, then a better understanding of their businesses is required.
