Rights as Usual

This post by Gabriel Araujo is part of the blog series Human Rights Reactions to Economic Laws. Gabriel Araujo is an independent consultant specializing in Business and Human Rights and Responsible Business Conduct. He is currently a PhD candidate at Paris 1 Panthéon-Sorbonne, where his research focuses on the development of mandatory Human Rights Due Diligence (HRDD).

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Informality remains one of the most pressing challenges in Latin America and the Caribbean (LAC), with nearly half of the region’s workforce engaged in informal employment. Despite economic growth and development efforts, informality hinders poverty reduction and social mobility. According to the OECD, in 2022, the average informal employment rate stood at 48.7%. Notably, in nearly 75% of LAC countries, women are more likely than men to be employed informally, a stark reflection of structural inequalities. This high level of informality among women not only exacerbates gender disparities but also constrains the region’s economic potential.

At the core of this challenge is a fundamental yet often overlooked question: How do human rights intersect with economic development? While it is widely accepted that economic growth plays a crucial role in advancing human rights – through job creation, public services, and technological progress – the reverse relationship remains underexplored. Can a human rights-based approach (HRBA) to economic policy contribute to stronger, more resilient economies? And if so, how can gender-focused financial instruments boost growth and productivity to shape the trajectory of the LAC economy? This blog focuses on the economic implications of the lack of parity between men and women and explores the role of a gender-sensitive economic agenda in LAC’s future. Here, I argue that addressing gender inequality is not just a matter of social justice but an economic need.

Informality in the development process

Perceptions of the informal economy vary widely. Some view informal workers as individuals with no alternative but to operate unproductive small businesses or take on jobs with poor working conditions, low wages, and no social protection. Others see informality as a burden on economic and social development, linking it to tax evasion, weak rule of law, and unfair competition between formal and informal enterprises. Meanwhile, another perspective acknowledges its role in sustaining livelihoods, as many workers consciously trade formal employment for the flexibility of informal work, as commonly observed among women.

Informality is more complex than these contrasting narratives suggest, yet two widely accepted realities stand out:

1. Informality is a daily reality for most workers globally.
2. It carries risks and vulnerabilities that pose significant policy challenges.

The concept of ‘informality’ was first introduced in the 70s after decades of debate. In 2015, the ILO’s Recommendation No. 204 defined the informal economy as encompassing all economic activities by workers and economic units that are, in law or practice, insufficiently covered by formal arrangements. While much is known about informality as a structural feature of economies, its precise role in the development process remains an open question.

The links between informality and economic development are intricate and often counterintuitive. Empirical analysis from the World Bank has found that higher levels of informal employment correlate negatively with GDP, the Human Development Index (HDI), and labour productivity while showing a positive association with poverty. However, reducing informality does not always lead to a straightforward decline in poverty – what matters most is the type of economic growth. For instance, in economies where growth is driven by manufacturing and agriculture, informality may persist or even expand. Moreover, the factors driving informality are highly context-dependent, differing across countries, industries, and economic cycles. One widely recognised driver is the surplus of low-skilled young workers entering labour markets in developing economies.

The gender dimension of informality

One undeniable reality is that women in the informal economy face heightened risks and vulnerabilities compared to men. This underscores a crucial point: informality does not affect all workers equally, it exposes men and women to distinct challenges and barriers.

A study from OECD and ILO highlights that in LAC, women account for 45.9% of informal employment (excluding agriculture), with their share exceeding 50% in some countries, such as El Salvador. However, their position within the informal economy is far from equal. Women are more likely to be concentrated in the lower tiers of informal employment, such as domestic work, self-employment with low earnings, and the lowest rungs of global supply chains.

According to the ILO, informal workers tend to work very short or excessive hours compared to formal workers. Still, women are more likely than men to work part-time and to have highly limited work schedules, often working fewer than 20 hours per week. A major contributor is women’s disproportionate burden of unpaid care work. Globally, women perform 76.2% of total unpaid care work, and in no country analysed by the ILO do men and women contribute an equal share. In some regions, women’s unpaid labour is two to ten times higher than that of men. This significantly reduces their availability for full-time paid work, pushing many into informal and insecure employment, which translates into restricted access to social protection systems and a higher risk of working poverty.

Gender Lens Investing

The economic contribution of women is increasingly recognised as a critical driver of growth. In 2015, a study from McKinsey Institute already estimated that LAC could see a US$2.6 trillion boost by 2025 if women participated in the market economy to the same extent as men.

For instance, although women in LAC are very entrepreneurial and often pushed into self-employment, they continue to deal with systemic barriers regarding access to finance and support for their businesses. A study from IDB Invest highlights several gender-specific challenges, including greater domestic responsibilities that limit time for business development, lower levels of financial literacy, and restricted access to support networks.  This financing gap presents both a challenge and an opportunity. Women-led businesses, as well as women in the informal economy, are an underserved segment that needs and wants financial support. Designing tailored financial products and services can unlock this potential.

This recognition has sparked growing interest in the intersection of gender and investment, leading to the rise of gender lens investing (GLI). At its core, GLI is based on the idea that capital allocation can simultaneously generate strong financial performance and advance gender equality.

Importantly, GLI can be a powerful operational tool within a broader HRBA to economic development. The HRBA is a conceptual and normative framework grounded in international human rights standards. It aims to analyse and redress the deep-rooted inequalities and discriminatory power structures that often underpin economic exclusion and development failures. In this sense, human rights serve not only as ethical imperatives but also as strategic tools to enhance economic resilience. By embedding principles such as non-discrimination, participation, and accountability into policy and finance, HRBA fosters more inclusive labour markets and broadens the productive base of the economy, strengthening its ability to withstand social and economic shocks. That is:

1. It directs investment into areas where inequality is most entrenched, such as women-led informal businesses, helping to reduce gender gaps in income, employment, and access to services.
2. It positions women not just as recipients of aid or credit, but as entrepreneurs, investors, and leaders, empowering them to shape economic priorities and decisions that affect their lives.
3. It removes barriers such as lack of collateral, limited financial literacy, and care responsibilities that disproportionately affect women, helping to level the playing field in access to credit and decent work.
4. It requires transparent reporting and clear benchmarks to ensure that investments truly advance gender equality.

Private Market initiatives

Private markets, including microfinance institutions, community development financial institutions, and commercial banks, have played a crucial role in financing women-led businesses in the region. Historically, microfinance has prioritised women borrowers, offering small-scale credit to entrepreneurs in the informal sector.

One of the most prominent microfinance institutions in LAC, Pro Mujer, adopts a holistic approach to empowering women. It combines financial support with business training and integrates health education on critical issues such as gender-based violence and disease prevention. This model demonstrates that women can be highly reliable borrowers, with an average repayment rate of 97%. However, microfinance has also faced criticism, particularly regarding high interest rates and concerns about over-indebtedness, raising the need for more inclusive and sustainable financing models.

Beyond microfinance, targeted credit solutions have emerged to address the specific needs of women entrepreneurs and informal workers. The line of credit Inclusión Mujer of Banco Hipotecario de El Salvador introduces special conditions, such as a grace period for pregnancy or family emergencies, recognising that women often bear the burden of caregiving responsibilities. This initiative also prioritises women in the informal economy who rely on day-to-day sales rather than just established micro-entrepreneurs, making access to capital more inclusive. Another example from the same institution is the line of credit for the domestic sector, which targets nannies, domestic workers, and caregivers – groups that form a significant portion of informal employment.

Scaling Gender Investments through Gender Bonds

In public markets, gender bonds have emerged as a powerful tool for directing capital toward women-focused initiatives. In LAC, several financial institutions have taken the lead in issuing gender bonds. Banco Pichincha Perú structured a social bond to fund projects in microfinance, SMEs, and mortgage lending, with a strong focus on advancing women’s financial inclusion. Similarly, BancoEstado was the first institution to issue a social bond specifically targeting women entrepreneurs, recognising that expanding their access to credit is essential for closing the gender gap in business ownership. Another notable example is Caja los Héroes, a pioneering initiative in the social security sector, which leveraged gender bonds to expand financial inclusion through the refinancing and growth of social credit programs.

Gender bonds offer an innovative way to integrate gender-focused investment strategies into mainstream financial markets. By mobilising private sector capital in support of women’s economic participation, these financial instruments create new opportunities for both investors and female entrepreneurs.

Conclusion: Bridging the Gender Finance Gap

Women make up half of the world’s working-age population, yet systemic financial barriers continue to limit their full economic participation. To bridge this gap, this piece has highlighted financial instruments as a key tool for fostering financial inclusion and enhancing labour market productivity in LAC. Through gender-focused investment strategies, microfinance, and innovative credit solutions, these mechanisms play a crucial role in driving sustainable development and long-term economic growth in the region.

These financial instruments enable business expansion, job creation, and the transition of women from informal to formal employment. They help alleviate working poverty among women, foster intergenerational mobility by increasing household income and educational opportunities, and contribute to greater tax revenues, ultimately strengthening economic resilience.

Therefore, ensuring women have equal access to capital and economic opportunities is not just a matter of social equity, it is an economic imperative grounded in human rights. A HRBA to economic policy embeds principles of equality, participation, and accountability into financial systems, enabling inclusive labour markets and dismantling structural barriers. When translated into concrete instruments, like GLI, microfinance, and gender bonds, a HRBA does more than promote justice; it contributes to macro-level outcomes such as economic resilience, stability, and long-term growth. While governments must shape inclusive policy frameworks, the private sector plays a critical role in scaling gender-focused financial solutions. By mobilising capital toward gender-inclusive initiatives, Latin America and the Caribbean can make meaningful progress toward a more inclusive and productive economy, where women’s economic participation is recognised as both a driver of growth and a pillar of sustainable development.