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Introduction

Now the world is on the verge of the Fourth Industrial Revolution. It means that almost all areas of peoples' lives will be automated. There are different programs that help in our everyday life, algorithms that solve complicated tasks, robots that help professionals in their everyday work. Research conducted by Ernst & Young has shown that nearly 28 percent of professionals reported people plugged incorrect data into their firms' enterprise system. Automatization can increase accuracy and efficiency. Moreover, it reduces the cost of service and product. Thus, they become more accessible for those who was not able to use it before.

There are people who are not involved in world economy as, for various reasons, they are not able to use traditional financial products. They do not have bank accounts, insurances or mortgages. In order to meet their needs they use means of informal financial relations. The main advantages of informal economy (EI) that attract are the user are its accessibility and ease of use. Very often informal financial services are much cheaper compared to those of formal financial economy and have been popular for a long time.

At the same time, there are major disadvantages of informal economy for the governments of states as it cannot be controlled and transparent. Budgets lose money due to non-payment of taxes; government is also not able to perform the needed policies as it does not know how many people are participating in the economy and how much money its population has. Apart from that there is a risk that the money can be used for financing illegal actions such as money laundering, terrorism, drugs and human trafficking.

Main part of IE is in Africa and Asia, because there are no strong banking system, good regulation of economy and lots of migrants, that do not have opportunity to use formal financial products and services. Also the reason is a huge amount of population in these regions and it is hard for governments to control all transactions and financial relations. In addition, people in these regions have habit to use IE since ancient times.

Due to digitalization of many processes and development of technologies, many, if not all, problems of informal economy can be solved. For example, the tendency for mobile payments replacing the use of cash can be observed. Both methods are easy for the user, the second option is less controlled. Usage of digital technologies makes it secure and transparent. By introducing the digital technologies into the most popular informal financial relations, we can involve a large part of Asian and African population into the world economy. Informal financial relations based on digitalization will become even more easy to use, at the same time the government will be able to track all transactions conducted within the system.

The main research question of this thesis is what are the key factors that influence digitalization of informal economy in the countries of Asia and Africa. In order to do that it is necessary to solve the following problems: to study the modern understanding of informal finance, to define types of informal finance relations, to define digitalization and its types, to define methods of implementing digitalization into informal finance.

For solving those problems, the following materials in the field of informal economy were studied: A Portes, W Haller, LA Benton, Barsukova S. and others. In order to define the specifics of the digital technologies works of the following authors were studied: Prof. Dr. Friedrich Schneider, D. Tapscott, M. Swan, M. Pilkington and others. Publications in the leading media resources were also studied: (The Guardian, The Telegraph, Economist, Forbes, etc.), databases of the following organizations were researched: WEF, World Bank, IMF, WSV, ILO, CIA Factbook and countries' statistic databases.

Chapter I - Overview of informal economy, digitalization, and their interrelations.

1.1 Definition of Informal Economy

economy financial informal technology

Informal economy (IE) combines various types of activities fully or partly unregulated by formal norms and it is not illustrated in statistical reports. In other words, it is such an economic reality that is not subject to formal economic regulations represented by both legal acts, applicable to all economic agents, and by contracts, applicable only to the parties of concreate agreements. Informal Economy is relatively diverse and includes shadow and criminal activities.

Informal economy includes “those actions of economic agents that fail to adhere to the established institutional rules or are denied their protection”. Or, alternatively, it consists of “all income-earning activities that are not regulated by the state in social environments where similar activities are regulated”.

Informal Economy is not regulated by financial regulatory bodies either. However, it is important to note that being informal does not necessarily make it illegal. For example, usury lending is indeed illegal, but borrowing from private persons in general (unless it is fund raising from the general public) is permitted. Moreover, there is even legal protection of informal financial contracts as long as the interest rate does not exceed four times of the level of the official rate.

Informal financial institutions are based on personal relationships and reputation and can more efficiently monitor and enforce repayment from a class of firms than commercial banks and similar formal financial institutions can. Nevertheless, informal financial systems cannot replace formal financial systems because their mechanisms are only applicable in certain situations and ill-equipped to scale up and meet more complex needs of formal market.

The main difference between formal and informal economy does not depend on the character of the ?nal product, but on the manner in which it is produced and exchanged.

Informal Economy has negative impacts on the whole society. There are three main stakeholders that undergo the influence of informal economy: population, state and business. For individuals IE means unfavorable working conditions such a low wages, exploitation, and unfair treatment with little to no recourse. For businesses it is an unfair competition, as informal companies are more flexible, they do not pay taxes, have lighter administrative burden and low-cost workforce. Therefore, formal companies turn to the informal economy to survive and stay competitive. This process has degrading effect on the economy. For governments it results in lower tax revenue, distorted view of actual economic activity, less money to invest in programs including infrastructures, healthcare, education, and security, which serve to benefit all citizens, and lower investment in social programs that leads to sustained - or even higher - levels of poverty and inequality.

1.2 Main Types of Financial Relations in Informal Finance

There are a lot of different types of Informal Financial Relations. Most of them have analogues in formal finance. Further, we will consider the most popular schemes. These schemes are most oftenly used in Africa and Asia.

The first scheme is an informal rotating savings and credit association (ROSCAS). It has over 200 different names that vary from country to country. For example, it is called tanda is the Latin American, cundinas in Mexico, susu/Osusu in West Africa and the Caribbean, hui in Asia, juntas in Peru, cuchubales in El Salvador and Guatemala, pollas in Chile, pandeiros (Brazil), paluwagan (Philippines), quiniela (South Africa). An English name for this term is a partnerhand. Generally, it is a form of a short-term loan among closed group of people.

A partnerhand can be organized in different ways. Usually it looks as folows: familiar people unite to collect money and help each other financially. They put a fixed amount of money to the group's fund every fixed period of time (weekly, monthly, yearly, etc). In the end of a period one of the members takes all money. Sometimes the group's organizer receives an interest for collecting and keeping the money safe. It continuous until each member has received collected sum of money. The group can decide what will be the order. It depends on such things as financial situations of the members.

As an example, ten friends form this scheme between themselves and every week they put $10 to their fund. At the end of the month they collect $400 and one of the ten friends get this money. They continue until all friends get the money.

Due to implementation of modern technologies to all spheres of our life some young users create companies that modernized these schemes with online platforms to increase the scale and transparency of such models. For example, eMoneyPool, Monk App, Moneyfellows, Puddle in the US and Partnerhand in the UK.

Tontine is another ROSCAS scheme, where people in a group regularly pay small amount of money into their common fund - the tontine. Then each member receives annual dividends based on their share. If one of the member dies, his or her share is redistributed among the remaining people in a group. It continuous until there is only one member of a group left.

One more scheme which is similar to tanda - Stokvel. Stokvel is an Africanized pronunciation of stock-fair, denoting a periodical gathering of buyers and sellers of livestock. It is a scheme where members meet periodically and contribute a certain amount of money in rotation into a common fund. Members have an opportunity to get a lump sum for extra needs or specific events.

There are different types of stokvels.

· Grocery Stokvels: Collects the grocery or cash coupons that members receive from supermarket chains when they buy provisions for the stokvel parties throughout the year and distributed these coupons at the end of the saving period.

· Purchasing Stokvels: Members collect money and purchase big items that can be used as a public good or source of income. For example, playground or tent that can be rented.

· Family Stokvels: Usually family members collect money and invest them in formal bank accounts or financial services. Then the money is paid out according to the needs of the family, for example, for buying land or cars, for business investments etc.

· Investment Group: People invests money in order to get the interest. When investments pay off, usually the money is withdrawn from the account but, in some cases, part of it can be kept back for reinvestment.

· Party Stokvels: Group of people organize an event like live concert or street party. An entrance fee is charged, and food and drink are sold. Profit is shared among all members. This type of stokvels can be grown into big businesses.

· Borrowing Stokvels: This type of stokvels give an opportunity to members and sub-members of a group to loan money at high monthly interest rates (between 20% and 50%) from its common fund.

Another informal financial scheme is funeral insurance arrangements. It is a type of informal insurance that provides by burial society to help families with the costs of a funeral in the event of a death. An estimated 28 percent of the population in South Africa is part of a burial society based on the contributions of its voluntary subscribers.

1.3 Benefits and Limitations of Informal Financial Relations

Informal Financial Relations exist parallel with Formal Financial Relations. By this reason there are benefits and limitations.

Firstly, Informal Financial Relations help formal economy especially in developing countries to meet a demand of society for financial services, financial products, jobs, etc. For example, people can find a job regardless of education or work permit or people can send the money if they don't have a bank account. Moreover, Informal Finance decrease cost of services and financial products. Fees and commissions in Informal Financial Relations are much lower than in Formal. It makes this sector very attractive for people. People can open their own business without their own capital, they can loan the money from community.

At the same time, the informal side of this relations make them partly or fully illegal. This type of financial relations gives an opportunity to hide all deals from government. There are no taxes, contracts and regulations. Government losses a lot of money and doesn't know what all this money are spend on. It can be transactions for family to buy food or for terrorists or drug dealers to buy or to do something illegal. The government can't measure the actual state of the economy and thus to create right and needed policy. Consumers are not protected from fake or unsafe goods. Workers do not have insurance to cover their expenses if they get injured. Then employees don't accumulate government pension benefits. Businesses based on informal financial relations have to stay small to avoid attracting government's attention. Thus, they cannot grow and increase effectiveness and compete with big formal companies.

1.4 Digitalization

“The effects of technology over the course of human history are well documented (Beniger 1986, Bradley & Nolan 1998, Bradley et al. 2016). The growth and advancement of civilization can be divided into three eras according to their respective core technological infrastructures: the agricultural era, the industrial era, and the digital era. Each of these eras has been profoundly affected by the ability to acquire new information and knowledge. However, they have all required and enabled new economic structures, social revolutions, cultural transformations, and work models.”

“In the agricultural era, people focused primarily on the use of the power of natural elements, such as wind and water. The most important resources were land, livestock, and agricultural implements. The initiative to gain core economic power was in the hands of the owners of the resources (farmers who owned vast and fertile farm lands). During this era, the owner of the resources also controlled access to proprietary information.”

“In the industrial era, people concentrated on the application of industrial power, the procurement of traditional physical resources, and mass production operating in accordance with the law of increasing costs. That is, once all production factors (land, labor, capital) are at maximum output and efficiency, producing an extra unit will cost more than average. Vapor and steam engines, as well as fuel, comprised the core infrastructures. During this era, the richness of material civilization was amplified by increasing the productivity of the physical space--building factories and establishing industrial complexes. The relationships among manufacturers, distributors, and consumers; improved productivity; process efficiency; and attention to transaction costs were all critically important to the success of industrial societies.”

“In the digital era, people are focusing on the generation and trading of products and services via digitalized data, information, and knowledge. This era is based on an infrastructure comprising information and communication technologies. This new infrastructure is not just helping people do things better and faster than in previous eras, but it is enabling new ways of control, coordination, and collaboration on activities more readily, at lower costs, governed by the law of diminishing costs. That is, because of the properties of digital goods, the cost per unit of marginal or additional output incrementally decreases, whereas the amount of all other factors of production stays constant. As digital resources become accessible, processed, transferred, and stored regardless of location or time, borders and geographical distances are no longer as critical as they once were, and wholly new, invisible electronic spaces are now available.”

We live in a world where technologies play key role on people's everyday life, how business create value and earn profit, where and how people work, and how we communicate and cooperate. There are lots of new technologies that change our lives, for example, machine learning and big date, cloud computing, mobile computing, progressive drones and robots, and smart manufacturing. These technologies help people do things faster and more efficient, as well create new tasks and new way of doing business process. All these technologies lead us to new industrial revolution. The new revolution is characterized by implementing new technologies - digitalization into all processes in our life. Ubiquitous computing is a modern trend not only in business, but also in engineering, sciences, social sciences, medicine and so on. Ubiquitous computing (ubicomp) is a concept denoting a model of human interaction with a computing system in which the user is surrounded by computing devices that are integrated into the environment. Ubicomp is not about one technology, it represents the interaction of communication and information environments where smart devices unite computers and people, things and objects and information. It creates a network of all smart devices and people. This conjunction of digital developments gives us a new type of the world, “one that is hyperconnected and data saturated, a world where an Internet of everyone is linked to an Internet of everything”. Today production of goods and services is an interaction of human, devices and information. Digitalization creates new habits, new demand and new needs of individuals, society, businesses and government.

There are differences between digitization, digitalization and digital transformation. Digitization simply means the conversion of analog source material into a numerical format. For example, the scanning of the book is a digitization of this book. So, then it is possible to use it without tangible form. Digitalization is more complicated process. According to Gartner's glossary “Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities. It is the process of moving to a digital business.” and digital business is the creation of novel business designs by integrating the digital and physical worlds. In other words, digitalization is a process of applying digital technologies and information to transform business operations.ЭAs an illustration it is like at the factory workers throw their hammers and other tools and in return using algorithm-based equipment. Automation plays a key role in digitalization. Also, there is another term - it is a digital transformation. ЭDigital transformation is process of changing the whole business and its strategy. It is the deep transformation of business and organizational activities, processes, competencies to deal with new changes and opportunities.

1.5 Implementing the digital technologies into Informal Financial Relations

As we say before, now we are on the verge of the Fourth Industrial Revolution. It means that almost all areas of our lives will be automated. There are different programs that help us in our everyday life, algorithms that solves complicated tasks, robots that help, for example, doctors to make surgeries. Automatization increases accuracy and efficiency. Moreover, it can reduce the cost of service or product. It makes these services or products more accessible for those who was not able to use it before.

As an example of such services we can take any financial product: credit, loan, mortgage, etc. There are a lot of people who cannot afford banking collateral. They have to use alternatives. Usually these are Informal Financial products. Nevertheless, the problem is that these products are sometimes not regulated at all or not regulated enough. Moreover, it is uncontrolled, and government cannot trace money transferring.

The main point is that a lot of people are not involved in the economy because they do not have bank accounts, insurance, etc. They cannot impact on the financial sector. We cannot make accurate world economic statistic if part of the world population is out of sight.

We can try to engage these people to the world economy by implementing the new digital technologies into informal financial relations. People who work just by oral agreement without labor contracts now will have Smart Contracts A smart contract is a computer protocol based on blockchain technology intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. - they will get money after they do their job and the employer will not be able not to pay. All transactions between costumers and sellers will be highly protected - no fraud, thefts, etc. Formation of group's funds will be easy and controlled. Everybody would be able to see each contribution and to know who, when and for what reason take money from the fund. The implementation of digital technologies into informal financial relations will make them transparent and controlled.

According to Prof. Dr. Friedrich Schneider - one of the leading experts in informal economy one of the best way to make informal economy formal is to digitalize more spheres of the whole economy. Gasparлnienл, Ligita, Rita Remeikienл, and Friedrich Georg Schneider. "Concept, motives and channels of digital shadow economy: consumers' attitude." Journal of Business Economics and Management 18.2 (2017): 273-287.

Cash makes it unchallenging to cover informal activities from authorities, so implementing of digital payments as an example of digitalization will weaken the informal economy and displace cash. “No wonder that countries with a low number of digital payments transactions per capita also have high informal economies. For example, Nigeria with 1,7 transactions per capita and Bolivia with 7,8 transactions per capita also have the highest informal economies - 53,4% and 46,4% of GDP, respectively. On the contrary, we have Hong Kong and Singapore where digital payments surpass 750 transaction per capita, with one of the world's lowest levels of informal economic activities - 12% and 9% of GDP accordingly. World Bank survey review 2018.

“Countries try to reduce the informal economy and motivate the use of digital payments in a diversity of ways. The measures can be broadly categorized in the following three policy areas “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018:

Disinclining the use of cash means the decrease of the sensibled benifits of paying by cash together with empowering change in traditions and habits of population that leads to its use. For instance, 95% of transactions that took place in India were in cash before 2016, 85% of employees were paid only in cash, and 90% of vendors could not provide charging to account payments. Moreover, about 50% of the population did not have bank accounts. Prime Minister of India, Narendra Modi, while trying to fight with scales of informal economy, as well as corruption and counterfeiting, determined to take all 500- and 1,000-rupee banknotes, which consisted 86% of national currency volume, out of circulation in 2016. The results were immediate, as already the next month the amount of digital payments increased by 35%. Later, it was seen that the jump had been temporary, probably for the reason of lack of cash to use; however, digital payments raises for more than a 1/2 higher one year from that moment. According to World Bank Findex statistics for 2017, quantity of adult citizens, who do not have a bank account, reduced to 20%. There are no other examples of such rapid and huge decrease of the circulating cash, demonetization of coins and bills is a practice that is sometimes used. Other ways of minimizing the volume of cash in circulation exist, such as establishing higher fees for withdrawals of money from an ATM, limits of cash withdrawal for a day and a week, as well as facilitated access to free/low-cost cash deposits.

Expansion and modernization of the infrastructure for enhancing contactless payment and facilitating the receipt of bank cards is a one more approach to lift of number of digital payments. Pyment infrastructure provided to population and willingness of entrepreneurs and companies to accept digital payments influences people's choice of way of payment. Some countries have even established the acceptance development funds to improve the situation with acceptance of payments with cards and gadgets in geographic regions and market sectors with low penetration. For instance, in 2014 Malaysia set up a fund for such purpose, which was supervised by the Government. The aim of this program, was to creat a "national acceptance infrastructure with 800,000 point-of-sale (POS) terminals by 2020, increased the number of POS devices by 60,000 in the first two years".

The third tactic is to promote the use of digital payments. The majority of actions can be devoted to this category. Government usually has a significant chance to influence the payment behaviors of companies and individuals as it is the largest payer and payer. It can be done by allowing digital payments in as much public facilities as possible or providing infrastructure for digital transactions in public offices. Lowering the taxes linked to measures for facilitation of the use of payments via cards and electronic devices has shown itself as a convenient method of raising such kind of payments.

“Mobile payment make it even more effective as people do not need to carry bank cards and use them directly. Contactless terminals, notifications through SMS, full control in the app make the gadget a central hub for payments. Many cities, including Vienna, Prague, Stockholm, and Helsinki, provide an opportunity to pay for public transportation via text message. In South Africa, the Zapper application has a function of paying for taxi by scanning a QR code. Low-tech mobile money transfer solutions in developing countries, such as M-Pesa in Kenya or bKash in Bangladesh have great impact on use of finance of major number of citizens who do not have a full access to banks. More than 50% of Kenya's population uses M-Pesa; worth of transactions in 2015 made up US$28 billion, which is more than 40% of the national GDP. bKash in its turn has more than 24 million active users, or about 15% of Bangladesh's population.A study conducted by Visa in collaboration with Prof. Dr. Friedrich Schneider on the relations between Informal Economy and digital payments examined 60 countries, making up 60% of global GDP, during 10 years. This research shows a strong inverse correlation between level of digitalization in the country and level of informal economy. Also they estimated the scale of IE. As stated by this study, the global informal economy is significant, surplus more than US$ 10 trillion - 23% of global activity in 2017. To understand and compare this number, this amount is nearly 3 times the Germany's GDP - European largest economy and the fourth-largest in the world “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018.

1.6 Methodology of case study

Based on the survey of informal economy, its drivers and nature, as well as types of digitalization and its notions above, I can hypothesize that if there is an inverse correlation between level of digitalization and the level of informal economy, to reduce the level of IE it is necessary to create foundation for implementing digitalization and further apply it. My suggestion is there are three key factors of successful implementing digitalization into informal economy - high level of technical development, demand to change daily operations and people's habit to use financial products. To prove my hypothesis, I will consider three different cases in three various countries and in divers regions. There are Kenya, United Arab Emirates and India. These countries were selected according to the level of informal economy in the country - more than 30% of GDP, technical level - it is necessary to have technological development for implementing new technologies, and the level of economic growth. All three countries also have a great influence on regional economy, as well as on world's trade.

Chapter II - Case Study

2.1 The case of M-Peso, Kenya

Kenya is the economic, financial, and transport hub of East Africa. Country's real GDP growth has averaged over 5% for the last decade. Since 2014, Kenya has been ranked as a lower middle-income country. (CIA)

Kenya has a high level of informal economy (IE). According to study of Prof. Dr. Friedrich Schneider, the level of informal economy in Kenya is 33,7% of GDP - US$24 billion “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018. For example, in Europe average level of informal economy is 18% Williams, Colin C., and Slavko Bezeredi. "Evaluating the impact of informal sector competition on firm performance: Some lessons from South-East Europe." Journal of Developmental Entrepreneurship 23.04 (2018): 1850025. and in US - 8,3% Powell, Martin, ed. Understanding the mixed economy of welfare. Understanding Welfare: Social, 2019.. 65% of total Kenya's IE are agriculture, manufacturing, forestry and fishing, wholesale and retail trade and also transportation. Likewise, these sectors have relevant size to the overall country GDP. Although, a high share of informal economy is in information, media, and telecommunications. There are lots of unregistered SIM cards distributed by unlicensed street seller and it is a big problem for government “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018. However, the share of informal economy is smallest in the financial and insurance sector - 10% of IE. These sectors mostly deal with banks or government.

There is a combination of main drivers of the informal economy in Kenya. It is a large poor rural population, which is limited in earning a living. 13,3 million people that work informally, which constitute 83% of total employment. That is why the IE is accepted and tolerated by the big part of population. Law enforcement in Kenya is ineffective comparing with developed countries, so the informal economy is difficult to obey the rules and regulations.

As in any other countries, Kenya has their advantages and disadvantages of IE. On the one hand, IE helps people to get a job Kenya National Bureau of Statistics, for government it solves partly society's demand on employment, for companies it is an opportunity to survive in the market with high taxes, low regulations and high administrative burden Livingstone, Ian. "A reassessment of Kenya's rural and urban informal sector." World development 19.6 (1991): 651-670.. On the other hand, people have unfavorable working conditions, low wages and no social support “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018. For companies in formal business it is unfair competition Bigsten, Arne, Peter Kimuyu, and Karl Lundvall. "What to do with the informal sector?." Development Policy Review 22.6 (2004): 701-715., because informal companies do not pay taxes or pay very few and have low-cost workforce. Government does not get taxes, has distorted view of actual economic activity and less money it can invest in development of country. But Kenya shows an example of decreasing level of informal economy, involving more people to formal sector and meeting the society's demand on formalization of IE through digitalization.

Today Kenya has a good level of digitalization by the reason of M-Pesa case. M-Pesa is a mobile phone-based money transfer, financing and microfinancing service, launched in 2007 by Vodafone for Safaricom and Vodacom, the largest mobile network operators in Kenya. M-Pesa gives their users opportunity to send money directly from one's phone to another's by using mobile money transferring. Users can do that through sms, USSD-request Unstructured Supplementary Service Data - is a communications protocol used by GSM cellular telephones to communicate with the mobile network operator's computers., call to operator or mobile application. It means that mobile balance is like a bank account. Users can keep all their money there, collect them or send to someone. The case is unique, because usually government struggles with high level of IE, for example, by increasing number of digital banking payments or restricting use of cash money. Implementation of such technology directly in this country significantly decrease amount of IE's users.

Before M-Pesa, most transactions were in cash. Money transferring is highly demanded in Kenya because people who work in the cities send money to their families in villages, suburbs and far counties. Thus, people should make transactions through Western Union with high fee or to send money with strangers who goes to the right direction and it was very insecure.

In case of M-Pesa, the individuals' demand on solving this problem was the key trigger to digitalize traditional way of transferring money. There are three main factors that make M-Pesa successful - people have a habit of sending money, they also have a great demand on money transferring, near 60% of population has mobile phones - the technical level was suitable.

This case can be considered for three stakeholders - individuals, business and government. Individuals tried to make their money transferring safer and started to send prepaid call minutes In that period was popular not to have monthly subscription but buy minutes before and then use it. to their families so they can exchange these minutes to any commodities or services at the same way. It was safer, but not so convenient. With M-Pesa Vodafone gives people an opportunity to send not only call minutes and also money from one's mobile account to another. Business just reacted to society's demand. For Vodafone it was a chance to significantly enlarge numbers of their costumers and increase profits. At the same time the success of M-Pesa and their mobile financial services was possible by development of policy in mobile telecommunication sector. In 2008, the year after M-Pesa introduced their service, the President of Kenya, Mwai Kibaki, proclaimed a development strategy to raise the country's development by the year 2030 - Kenya Vision 2030. So, government rapidly responded to the demand of clear regulation for mobile sector and made digitalization as a country's strategy.

However, the total level of IE in Kenya has not changed crucially the last 12 years. The graph below illustrates the level of total informal economy as a % of GDP. Comparing 2007 year, when M-Pesa was launched and 2019 year we can see that there is no significant difference. It can be explained by the high level of informal labor force in country. Nearly 83% are informally employed Jhabvala, Renana. “Informal Workers & the Economy.” Indian Journal of Industrial Relations, vol. 48, no. 3, 2013, pp. 373-386. JSTOR, www.jstor.org/stable/23510784.. This part of economy is still non-digitalized and highly demanded.

Figure 1. The level of informal economy as a percentage of GDP

Source: “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018

Next graph shows the level of access to formal and informal sector. Before introducing mobile payments very few people could participate in formal sector, but with M-Pesa access to formal financial services has expanded significantly among people.

Figure 2. The level of access to formal and informal sector

Source: Central Bank of Kenya and FSD Kenya

The graph below demonstrates shares of users of mobile transferring of money, other formal services and any informal ways of sending money. Mobile money transferring- it is M-Peso, other formal services - it is banks' transferring, WesternUnion-like firms, etc. With introducing M-Peso the shares of informal and tradition formal users decreased. Almost all Kenyans are using M-Peso service now.

Source: Kenya National Bureau of Statistics

Figure 3. Shares of users of different types of sending money

If we summarize users of mobile payments and other formal services, we can obviously see that the informal level of money transferring decreased significantly, and number of formal users has tripled comparing with 2006.

Figure 4. Shares of users of formal and informal money transferring

Source: Kenya National Bureau of Statistics

As a summary we can state that there is a strong inverse correlation of digitalization of traditional financial activities, in this case it is an inclusion of M-Peso's mobile payments and the level of informal economy. The higher the digitalization rate, the lower informal economy share. The success of M-Peso in Kenya can be identified by existing conditions in the country. Society has a habit to transfer money, there is a great need to send money across the country, more than a half of population has mobile phones, no formal alternatives and government's support of developing this technology.

According to other studies in information and communications technology (ICTs) and their correlation with informal economy, there is the phenomenal growth of ICTs as evidenced by the increase in mobile subscriptions in developing economies, including East Africa, especially in Kenya. Pearce, Katy E. "Phoning it in: Theory in mobile media and communication in developing countries." Mobile Media & Communication 1.1 (2013): 76-82. A great proportion of these subscriptions come from individuals in low-income brackets, including those living in poverty. James, Jeffrey. The impact of mobile phones on poverty and inequality in developing countries. Springer, 2015. This part of society is the main users of the informal economy. Kenya has 33 annual digital transactions per capita “Digital payments and the global informal economy”, a survey conducted by Visa and. Prof. Dr. Friedrich Schneider. 2018. - the middle level among developing countries. If country continues its growth and increases digital payments by 20% annually for five years, Kenya will reduce the level of informal economy by 9,3 percentage points - to 24,4% in the 2024 (Takavarasha Jr) Takavarasha Jr, Sam, and Carl Adams, eds. Affordability Issues Surrounding the Use of ICT for Development and Poverty Reduction. IGI Global, 2018. , increase GDP by up to US$ 5,6 billion and gives additional tax revenue more than US$ 2,4 billion Tyson, L., and S. Lund. "The Promise of Digital Finance." European Financial Review (2017)..

2.2 The case of UAE

The United Arab Emirates (UAE) is one of the richest countries in the region with a high per capita income - $74 088 and a sizable annual trade surplus CIA World Factbook. The economy of Emirates is in top 10 worldwide. Traditionally the main income comes from crude oil trade as well as in other monarchies in the Gulf like Kingdom of Saudi Arabia, Qatar or Kuwait, but after 2015 country has been focusing on developing the business environment and investment climate for the past five years "UAE Economy: UAE Seeks to Boost its Competitiveness and Global Profile." EIU ViewsWire, Dec 01, 2017. in order to attract more foreign investment by that diversify the economy. In 2018 the oil income was less than 30% of total country's revenue and to 2025 authorities are planning to reduce it to 7% Schiliro, Daniele. "Diversification and development of the UAE's economy." (2013).. UAE has the most diversified economy in the GCC. Mainly because of Dubai's policy.

Over the ten years, the Dubai Emirate has started to find additional source of income. Emirate's authorities actively developing tourism, international finance and financial intermediation. Now Dubai has been recognized as the main financial and business center of the Middle East and it is now also competing with global cities such as London and New York. In addition, they even have special financial institute called the Dubai International Financial Centre (DIFC). DIFC is a financial hub for the Middle East, Africa and South Asia (MEASA) markets. This Financial Center is a special economic zone with independent jurisdiction with its own commercial and also civil laws which can be different from UAE's legislation. There is a custumed financial regulatory system and laws are taken from best practice in other leading financial centers like London, New York, Singapore and Zьrich. The DIFC website All laws and regulations are in English and with an ambiguity the English law is default. There is its own courts and judges for them are invited from leading common law jurisdictions, for example, from England, Hong Kong and Singapore. The DIFC also offers nearly 60% of foreign ownership, with no taxes, freehold office space and land Ibid .

Moreover, in April 2018, the UAE's authorities launched the Emirates Blockchain Strategy 2021. The goal is to capitalize the blockchain technology and become the first blockchain-based country in the world to 2021. Dubai has also the same strategy - Dubai Blockchain Strategy 2020 and they are going to become the first blockchain-powered city in the world to 2020. Now this Emirate has eight Government entities at blockchain - Dubai Courts, Dubai Municipality, Dubai Public Prosecution, Knowledge and Human Resources Authority, Dubai Health Authority, Community Development Authority, Dubai Airports, and Dubai Customs. The aim of this initiative is to make Dubai completely paperless city. It makes this Emirate almost digitalized and the UAE one of the leaders of the digitalization.

Another example of advanced use of technology is Dubai's “Smart Palms” - green palm tree-like self-sustainable devices recharge stations with free Wi-Fi zone and city info point. Each palm equipped with 360 infrared camera and emergency button Dubai's Smart Palm stategy. Smart Palms are completely autonomous due to its solar panel on the top. These palms also provide space for public info messages, government notices and commercial advertisement through digital screen Ibid. Under the palm there is a relax zone, where people can rest in the shadow during battery charging of their devices. Moreover, these palms are equipped with Artificial Intelligence (AI) unit that can consult residents and visitors of the Emirate. For example, one can look at the city map, ask where to eat or find all the necessary places like shops, hotels, etc.

All these initiatives are making UAE a global leader in the smart economy. Emirates have highly digitalized government, economy, and private sector. It means that all processes in the country are transparent, fixed and secure. At the same time, there are some traditional to this region relations that are not still digitalized and perhaps will not for a long time. Especially financial relations that are completely informal.

The informal economy can prosper in developed countries with welcome regulations. Usually, in the cities with a big financial market, the informal relations are very popular, as they are the place for cumulation of big amounts of money and attraction of migrants. Dubai is a great illustration of such situation as it is one of the biggest hawala hubs in the world, as well as UK and Switzerland "Hawala" www.treasury.gov. Financial Crimes Enforcement Network with Interpol/FOPAC, 2017.. Hawala is an Informal Value Transfer Systems (IVTS), which is the most popular informal financial relations worldwide Passas, N. (2003). Hawala and other informal value transfer systems: how to regulate them? Risk management, 5(2), 49-59. Considerable money flows are annually channeled through these IVTS. These systems are very demanded in Asia and Africa, as for the majority of people in these regions it is the only way of transferring money across the borders and within countries, due to absence of bank accounts. Moreover, traditional Informal Value Transfer Systems arised a long time ago and are deeply integrated in the culture of many ethnic groups Passas, N. (2005). Informal value transfer systems and criminal activities. WODC. . For these reasons, it is unrealistic to make effort to stop or eliminate such systems. Some countries have tried to do that and achieved nothing but criminalization of otherwise law-abiding citizens.

The same can be said about hawala and its use in Dubai. Main point of this IVTS is the trust, on which transactions are based, and the ability to leave no traces for anyone seeking to reconstruct the trail of the value/funds. There is no need in physical transfer of the money, as it is enough just to send information about the sum of money between hawala brokers. The strength of the hawala system is that it is fast, cheap, secure, confidential and easily available. A basic hawala-based scheme involves a sender, at least two intermediaries (hawala brokers or hawaladars) and a recipient. For example, if one wants to send the money from UAE to his family in Pakistan, he or she need to go to nearest bazaar, where one of local hawala operators or hawaladars can be found with high probability. This operator will get sender's money and give him a code (usually, those are the last figures of a banknote), then operator in UAE will contact by phone, SMS, email, fax or other way, his partner in Pakistan and tell him how much money Pakistan operator should give and what's the code of this deal. When one of sender's relatives come to Pakistani operator, she or he just say a code and hawala broker gives as much as sender gave to operator in UAE minus small commission of hawaladar (commonly it is 1-2%). The operators' accounts will be netting with compensatory payments (when someone send money from Pakistan to UAE). ”

People do not have a habit to physically transfer money but have habit to send it through the hawala. It means that there is no demand of society to make these financial relations digitalized and formal. The reason is that there are many migrant workers, which want to send money to their families, but their countries are not so advanced and modern as The United Arab Emirates to do it through any digitalized way. Thus, people continue to use hawala for their needs.

The main feature of this case is that country has a high level of digitalization that means the UAE should have a high level of formalization. At the same time, Dubai is one of the biggest hubs for informal financial relations. Therefore, we can conclude that the level of digitalization is not a necessary the key factor for formalization of economy, but it is also important people's habit and public demand.

2.3 The case of India

India is a developed country with a high level of technical development and average level of informal economy. India also is a member of BRICS organization, that means a high impact on the world economy. Nearly 60% of economy is a service sector, that for the most part is outsourcing and export of software. India has the second-largest labor force market, and more than a half are working informally. Now the level of IE in India is 22,1% of GDP Gasparлnienл, Ligita, Rita Remeikienл, and Friedrich Georg Schneider. "Concept, motives and channels of digital shadow economy: consumers' attitude." Journal of Business Economics and Management 18.2 (2017): 273-287.. However, before 2015 the level was significantly higher - 31,3% Friedrich Georg Schneider. “Digital payments and the global informal economy.” Visa survey 2017. . 91% of transaction were in cash and a lot of banknotes were fake George, Justine. "Informal Sector in India: A Review." (2014): 567-577.. According to the authorities, money earned from counterfeiting mainly went to the financing of illegal activities such as a terrorism The speech of the Prime Minister Narendra Mod about the demonetization in India.. To fight with the Informal Economy, the Government of India announced the demonetization of all 500 and 2000 rupees - most popular banknotes in India that mostly counterfeited. This initiative was a part of country's strategy - Digital India. Digital India includes plans to hold the high-speed internet in rural part of the country, development of stable and secure digital infrastructure, provide government service digitally, increase digital literacy and also reduce the level of informal economy, especially by rising the number of digital payments and digital financial intermediations.

At the first stage, Government demonetized most commonly used banknotes. The main idea was to eliminate counterfeiting. But as a result, it additionally increased the demand on digital payments, and the Government rapidly started to develop digital ecosystem. Before this reform there were nearly 16 million transaction per year and to 2018 the number of transactions enlarges to 25 billion Garg, Krishan, and Savita Devi. "Digital Payment Systems In India." Business Management and Social Innovations: 349.. If the number of digital transactions continue to grow for 20% per year as it is now Kulkarni, Amol, and Swasti Gupta. "Users' perspectives on digital payments in India." Gates Open Res 3 (2019). for next five years, the level of informal economy will reduce to 13,7% of GDP Friedrich Georg Schneider. “Digital payments and the global informal economy.” Visa survey 2017, Self-collected database to 2024 year. The GDP will increase due to taxes from digital activities and rise of digital companies to US$ 3 383 billion from US$ 2 597 billion in 2016 and tax revenue to US$ 603 billion from US$ 319 billion in 2016 Ibid.