Issue 2 - Why Formalization Policies Miss Micro and Small Entrepreneurs: Institutional Trust, Regulatory Uncertainty and SME Governance in Kazakhstan

Abstract

The article examines why formalization policies do not automatically translate into stable compliance among micro-entrepreneurs in Kazakhstan. State-led initiatives such as digitalization, tax incentives, SME support programs aim to encourage business formalization, yet many entrepreneurs still operate informally or in a hybrid mode. Based on semi-structured interviews, qualitative content analysis of social media discourse, secondary policy analysis, paper explores how institutional trust, regulatory uncertainty and perceptions of state support programs shape decisions to formalize. The findings show that entrepreneurs often experience issues with the regulatory environment due to its structural incompatibility with small-scale business operation, the income volatility, shifting tax rules and administrative complexity. Instead of directly moving from informality and formality, entrepreneurs develop hybrid strategies that combine selective compliance with informal adaptation. Formalization is driven more by enforcement risks, contractual necessity, access to digital administrative tools, rather than by motivation to obtain financial support from state programs. Thus, SME governance should be evaluated not only through business registration rates, but through stability of compliance, institutional trust. Given the small, single-city and single-sector sample, the findings should be treated as exploratory rather than generalizable.