M.Com. / The informal sector in Southern Africa has in recent years became a subject of interest, debate and focus to academics, policy makers and business people alike. This mainly stems from the sector's job creation potential, its use as a distribution channel for consumer goods and its role as a first step in the promotion of entrepreneurship and free enterprise. Informal enterprises however are faced with a number of constraints and problems. These include legal constraints, a lack of management skills, a limited access to raw materials and suppliers as well as marketing limitations. begun to Notwithstanding the increasing number of that have stated problems, there has been an development agencies and organizations provide loan finance to informal enterprises evaluate the in recent years. However, little has been done to effectiveness of such loan finance. The objective informal of this study is to ascertain the extent to which enterprises effectively use loan finance to increase earnings and returns to owners. The study looks into various approaches of defining the informal sector and focuses on the dualistic model, its characteristics and shortcomings. A definition of the informal sector is then formulated from various other definitions. The study also defines financial leverage and looks into the constraints of informal enterprises to employ financial leverage due to their limited access to formal institutional finance. Informal sources of funding such as "stokvels", burial societies, "mashonisas" etc. are also discussed.