Having seen its desperate importance, this study examined the cause and impact of informalrneconomic activities specifically street vending sector. Concerning the methodology, quantitativernand qualitative approaches of a research was employed. Both primary and secondary sources ofrndata were used. Purposive and convenience sampling techniques were used to select two sectors,rn222 business operators and 100 users for the study. Data collection was effected by use ofrnstructured questionnaire and interview. Both descriptive and inferential statistical techniquesrnwere used in data analysis. Propensity Score Matching was also employed to examine the impactrnof economic informality on household livelihood in terms of livelihood index.rnIt was identified that people get involved in street vending activities due to Social and economicrnfactors. The study further investigated that harassment and eviction, lack of capital, absence ofrnworking place, and access to credit are among the challenges face street vendors in the studyrnarea. The results of the study also reveal that accessibility to buyers, having more dependentsrnand low price of products/service encouraged people to choose street vendors over normal shoprnand small and micro enterprises. Finally the study revealed that participation in informalrneconomic activity (street vending) has the power to decrease livelihood index of households fromrn-0.191 to -0.220. In light of the above findings and in order to improve street vending sector, thernstudy suggests that policy makers considers legalizing street vending and planning forrnappropriate location in urban areas, build capacity of street vendors, formulate a street vendingrnpolicy and strengthen stakeholder relationship.rnKey words: Informal Sector, Street Vendor, Livelihood, Economic Informality