From Shadow to Structure: Lebanon's Decentralized Path to Micro, Small, and Medium‐Sized Enterprise Formalization

ABSTRACT Lebanon's economy relies heavily on Micro, Small, and Medium‐sized Enterprises (MSMEs), yet nearly one‐third of firms and two‐thirds of workers operate informally, exacerbating economic vulnerability and limiting state revenue. Structural barriers and limited incentives hinder formalization, constraining growth and institutional development. Drawing on Lebanon's policy efforts and lessons from similarly informal economies in Egypt, Morocco, Tunisia, and Peru, this report proposes a phased, municipal‐led formalization strategy. By introducing a 3‐year transitional registration phase, streamlined digital platforms, and targeted outreach, Lebanon can enhance compliance, boost revenue, and strengthen governance, offering a scalable model for developing contexts.