When Pedro Rodriguez injured his hand, it ended his career as a musician of the cajón—a traditional Peruvian percussion instrument. But instead of giving in to adversity, Pedro reinvented himself. He launched a business crafting cajóns and selling them to other artists. 
Despite his talent, Pedro faced a persistent challenge. Without legal registration, he was initially forced to operate in the informal economy, lacking both legal recognition and opportunities for growth. 
This isn’t a challenge for Pedro alone. As of April 2025, Peru continues to struggle with one of the highest rates of informality in Latin America. An estimated 12.4 million Peruvians—71% of the workforce—work outside the formal regulatory framework. From street vendors to laborers in small enterprises, most operate without contracts, protections, or access to credit. 
“In Peru, many people work informally––not because they want to––but because they have to,” explains José Alberto León, Project Director of Argentinian think tank Fundación Internacional Bases.
His point underscores a border reality: informality is rarely a deliberate choice. Instead, it is perpetuated by bureaucracy that makes formalization unnecessarily complex and costly. The process is poorly coordinated across government agencies and lacks accessible information. On top of that, compliance costs, paired with high taxes, are also frequently unaffordable for many micro-entrepreneurs operating on thin margins.
In other words, without the financial literacy or capital to overcome these barriers, many businesses remain trapped in informality. 
The consequences are significant. Informal workers lack social protections and legal security, leaving them vulnerable to exploitation. And informal businesses are excluded from credit and formal banking options, remaining stagnant and undercapitalized. This dynamic limits social and economic mobility and entrenches inequality, sustaining a two-tiered society: one with rights and opportunity, and another left behind in legal and economic uncertainty.