Municipal authorities are increasingly turning to the private sector to provide essential services to their ever-growing populations. However, the private sector may be unwilling to supply low-cost services to low-income areas of the city. Informal operators already often provide services in these areas, and this article demonstrates that small local providers can be supported to deliver better services through formalized partnerships with the authorities. They are often in a better position to deliver appropriate services to the poor; they also provide an important employment opportunity for the very poor. The article draws mainly on the experience of small enterprises in solid-waste collection in Dar es Salaam, Tanzania, and contrasts the experience of a community-based organization and a small private waste-collection company. The article discusses the capacity building that is required to improve service delivery and working conditions, as well as outlining the important features of pro-poor contracts.