The diagnostic study was carried out from November 2004 to September 2005. It consisted of a study on the extralegal sector aimed to determine the mode of operation; size and economic value of the sector; legal and institutional barriers to formalization and incentives that encourage preference of extralegal practices to legal and formal systems.
Activities and outputs for this phase included:

• Defining and mapping out of the extralegal sector to determine its magnitude, types, location, value, its relation to statutory organs, its operational systems, procedures and the key actor
• Identifying the main institutional constraints that create legal, administrative and economic obstacles to the integration of extralegal (informal) sector into formal economic set up
• Identifying non-institutional constraints that impact negatively on the attempts of the people in the informal sector in formalizing their assets
• Developing Development Communication Strategy that creates public acceptance and support for this initiative
• Laying the groundwork for re-engineering of the of the current legal systems governing property and businesses so as to achieve the program objective

Major Findings
The diagnostic study revealed two major findings; first, it was revealed that the current legal framework governing properties and businesses are largely unfriendly to small businesses and asset owners. Enforcement and compliance are cumbersome, and expensive. In short the prevailing regime is simply anti-poor, often exclusive and very unhelpful in building up an all inclusive society. As a result the legal tools that are present are not being used by the majority.

Secondly, in order to overcome the difficulties and barriers posed by the present property and business regime Tanzanians in the extralegal sector have created and organized their own systems of acquiring property rights, opening businesses and managing transactions in business and property. These are termed as “archetypes”. In short Tanzanians at the grassroots level have spontaneously generated facilitative institutions that are the very building blocks of a formal economy.

The key findings from the study indicated that:

• About 90% of Tanzanians reside and earn their livelihoods in the extralegal sector.
• The extralegal sector is extremely large, whereby 89% of property is held extra-legally and 98% of the businesses are operated extra-legally.
• About 86% of all urban property (real estate assets) valued at US$9.4 billion is extralegal.
• About 26% of the extralegal real estate assets are in Dar es Salaam and out of these 11% is located in planned areas while the rest is in unplanned areas.
• The replacement value of both extralegal urban property real estate and business assets, is 11.6 billion (hidden capital).
• The value of these extra legal assets (dead capital) is estimated at US$ 29.3 billion.