This glossary provides definitions for the commonly used terminology in the Economic Recovery Standards. These definitions are reflective; the common lexicon based upon widely accepted definitions in work related to economic development, microfinance, enterprise development, livelihoods, market development, agriculture, and food security. Unless other sources are noted, these definitions are adapted from the Microenterprise Development Office at USAID via their website: www.microlinks.org.

Access
In financial services, access is measured by financial institutions’ outreach (in numbers) to micro- and small enterprises, with products and services they can use profitably. The definition is similarly applied in enterprise development, in that access is measured by the numbers of enterprises that can profitably access products and services required for their business, including markets.

Adjusted return on operations
The core measure used by many organizations to assess the financial sustainability of a microfinance institution. A value of one or more implies full financial sustainability (see Full financial sustainability.)

Asset protection
Most often refers to preventing the sale or consumption of assets by transferring cash or assets (e.g., vouchers, food aid), but may also include activities to physically protect natural and household assets and ensure access to larger-scale or group assets (such as land, water or group-managed facilities), as well as efforts to ensure that local laws and cultural norms do not endanger people’s assets.

Broad outreach
The provision of significant benefits to large numbers of a particular target group.

Business
An occupation, profession, trade, or entity engaged in an economic activity for profit. (See Enterprise and microenterprise)

Business development services (BDS)
The wide array of non-financial services critical to the entry, survival, productivity, competitiveness, and growth of enterprises ²⁸ (see Enterprise and microenterprise). It includes the strategic and operational services that firms need to sustain their operations and to upgrade, in order to increase their profitability. BDS can include generic services, such as ISO training, information technology technical assistance, strategic planning, and marketing, as well as sub-sector-specific services in product development, market access, input supply, equipment sale or leasing, and other sector technical assistance and/or training.

Business linkages
Includes both vertical and horizontal linkages among enterprises. Business linkages involve building mutually beneficial relationships between businesses at the same level of the value chain (horizontal) and at different levels of the chain (vertical) and addressing the constraints at all levels of the chain to support win-win relationships. Business linkages are sometimes also referred to as market linkages.

Cooperatives ²⁹
A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise. The co-operative model of enterprise can be applied to any business activity. Cooperatives exist in traditional economic sectors, such as agriculture, fisheries, consumer and financial services, housing, and production (workers’ co-operatives). However, co-operatives are found in a wide range of sectors and activities, including car-sharing, child-care, health and social care, funerals, orchestras and philharmonics, schools, sports, tourism, utilities (electricity, water, gas, etc.), transport (taxis, buses, etc), among many more. (See Group assets and producer groups)

Competitiveness
The ability of an enterprise or a country to compete successfully based on price, quality, uniqueness, good service, and/or other socially or environmentally valued standards with other firms or countries. Competitiveness is also referred to as sustainable growth in productivity that results in an improved standard of living for average citizens. Achieving and maintaining competitiveness depends on the ability to innovate. Since the competitive advantage of a firm is dependent on the business system and policy environment in which it operates, competitiveness at all levels is inter-dependent. Thus, success at achieving competitive performance depends not only on a firm’s ability to innovate but also on the performance of both upstream and downstream links in their respective value chains.

Coping strategies
Refers to specific efforts that households employ to address disruptions to their sources of income. Common examples of potentially negative coping strategies include reducing daily food intake; consuming cheaper food; reducing household expenditures on items, such as clothing, medical care, and education; and reducing the number of dependents in the household.

Corruption ³⁰
The abuse of entrusted power for private gain, including financial corruption, such as fraud, bribery, and kick-backs. It also encompasses non-financial forms of corruption, such as the manipulation or diversion of humanitarian assistance to benefit non-target groups, the allocation of relief resources in exchange for sexual favors, preferential treatment in the assistance or hiring processes for family members or friends, and the coercion and intimidation of staff or beneficiaries to turn a blind eye to or participate in corruption.

Deep outreach
The provision of significant benefits to particularly disadvantaged members of a broader target group. In the case of enterprise development programs, these typically include the poorest microentrepreneurs, female microentrepreneurs, etc.

Economic development
As a broad discipline different groups define economic development based on their target group and field of practice. Definitions of the term include:

• Improvements in the efficiency of resource use so the same or greater output of goods and services is produced with smaller throughputs of natural, manufactured and human capital.³¹
• Qualitative change and restructuring in a country’s economy in connection with technological and social progress. The main indicator of economic development is increasing GNP per capita (or GDP per capita), reflecting an increase in the economic productivity and average material wellbeing of a country’s population. Economic development is closely linked with economic growth.³²

Economic growth³³
Quantitative change or expansion in a country’s economy. Economic growth is conventionally measured as the percentage increase in gross domestic product or gross national product during one year. Economic growth comes in two forms: an economy can either grow “extensively” by using more resources (such as physical, human, or natural capital) or “intensively” by using the same amount of resources more efficiently (productively). When economic growth is achieved by using more labor, it does not result in per capita income growth (see Chapter 4). But when economic growth is achieved through more productive use of all resources, including labor, it results in higher per capita income and improvement in people’s average standard of living. Intensive economic growth requires “economic development“http://www.worldbank.org/depweb/english/beyond/global/glossary.html#18.

The increase in value of the goods and services produced by an economy. It is conventionally measured as the percent rate of increase in real gross domestic product (real GDP). Growth is usually calculated in real terms, i.e., inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, “economic growth” or “economic growth theory” typically refer to growth of potential output, i.e., production at “full employment,” which is caused by growth in aggregate demand or observed output.

Enabling environment
An environment of policies, regulations, institutions, and overall economic governance which allows for economic growth.

Enterprise³⁴
An enterprise is considered to be any entity engaged in an economic activity, irrespective of its legal form. In enterprise development programs, this particularly includes self-employed persons, family businesses, partnerships, or group businesses (associations, cooperatives, informal groups) that are regularly engaged in an economic activity. (See Microenterprise for definitions of micro-, small, and medium enterprises based on revenue and employee size.)

Exit strategy
Relates to withdrawing from subsidizing an intervention, leaving behind sustainable improvements in the private sector.

Facilitator
An institution or project that gives indirect support for private sector development. Rather than providing services directly, a facilitator orchestrates interventions that build local capacity for providing commercial services and/or solutions (to recurrent constraints), preferably through existing providers in the private sector. Services and/or solutions can include access to markets, product development/design, technology access, training, consulting services, financial services (links to financial services), improved inputs, and/or advocacy services.

Financial costs
The costs of the funds raised by a microfinance institution to cover its lending. Depending on the context, this may include only out-of-pocket interest costs paid to depositors and/or to other financial institutions, as well as the opportunity cost of funds received as grants or soft loans from donors, governments, or charitable organizations.

Financial services
In the context of enterprise development, these include the provision of a range of financial services to low-income people, including credit, savings, remittances, insurance, leasing, and credit cards (see Microfinance).

Financial sustainability
The degree to which an organization collects sufficient revenues from sale of its services to cover the full costs of its activities, evaluated on an opportunity-cost basis.

Formal sector³⁵
The formal sector or formal economy refers to regulated economic units (e.g. businesses) and workers that are regulated and protected. Put another way, the formal sector comprises economic activities and enterprises that are regulated and/or taxed by the government. (see Informal sector/informal economy)

Full-cost-recovery interest rates and fees
The level of interest rates, fees and other expenses needed to cover the full long-run costs of providing a given loan or other financial or non-financial service.

Full financial sustainability
A situation in which the revenues an organization generates from its clients cover the full (opportunity) costs of its activities, thus allowing it to continue operating at a stable or growing rate without ongoing support from governments, donor agencies, or charitable organizations. When applied to a financial services institution, full financial sustainability requires that the interest and fees the microfinance institution collects for its lending equal or exceed the sum of its operational and financial costs, with the latter evaluated on an opportunity-cost basis.

Full long-run (opportunity) costs
In the context of these guidelines, the financial plus operational costs are what an organization spends to provide a given quantity and quality of services (for example, credit), once the organization has achieved feasible economies of scale and improvements in operational efficiency, with all costs evaluated on an opportunity-cost basis. It is used as a basis for estimating the prices that must be charged for services to allow the organization to reach full financial sustainability. In the case of a financial services institution undergoing significant growth and/or improvement in operational efficiency, the full long-run costs of providing credit will typically be less than currently observed costs.

Group assets
Assets owned formally or informally by a group of individuals engaged together in a business. Examples of typical group-managed assets include drip/sprinkler irrigation systems, packaging equipment, warehouses, and generators. Group asset transfers tend to be larger in scale (value and size) than individual asset transfers and more concentrated in one location; thus additional attention prior to transfer must be given to evaluating local market impact and implications.

Impact
A favorable and intended change in some high-level program objective, such as enterprise growth or household income. It should be distinguished from intermediate outputs of projects, such as the number of producers organized or the number of trainings provided.

Impact assessment
Involves assessing the impact of a project and proving attribution by comparing actual outcomes with a counterfactual—an estimate of what would have happened if the project had not been implemented. The best way of assessing project impact is through a longitudinal sample survey that uses an experimental or quasi-experimental methodology to compare a sample of project participants with a non-participating but otherwise similar control group. Impact is sometimes measured by canvassing participant and/or expert opinion. While such qualitative inquiries can effectively supplement longitudinal surveys, they are not satisfactory substitutes for the superior approaches.

Implementing organization
In the context of economic recovery, any government or non-government organization that directly provides financial services and/or non-financial assistance to microenterprises, or that performs other activities intended to improve the environment for microenterprise performance.

Inter-firm cooperation
Defined as a strategic agreement between two or several businesses involving exchange and/or sharing or co-development of products, technologies, or services; and covers a variety of arrangements between micro, small, medium, and large enterprises, including licensing and subcontracting relationships, technology, marketing, and other forms of strategic partnering. The primary motivation for this cooperation is to enhance competitive position or market power, decrease transaction cost, and provide access to organizational knowledge and learning. Inter-firm cooperation could be an effective mechanism for capacity-building in areas, such as technology, product and process quality improvements, marketing, and managerial know-how, particularly for micro-, small and medium enterprises. (see Business linkages, Cooperatives, and Producer groups)

Informal sector/informal economy³⁶
The informal sector or economy, also called the “second economy,” refers to work that is not regulated or taxed by the government. It covers a multiplicity of activities and different types of relationship to work and to employment. The informal sector may include the self-employed (in their own activities and family businesses), paid workers in informal enterprises, formal-sector employees with informal second economic activities, unpaid workers in family businesses, casual workers without fixed employers, and sub-contract workers linked to formal or informal enterprises. The vast majority of the world’s workers, including the poorest, are in the informal sector. (see Formal sector/formal economy)

Livelihoods
A livelihood comprises the capabilities, assets (including material and social resources), and activities required for a means of living. A livelihood is sustained when it can last through and recover from various stresses and shocks, and preserve or enhance assets and capabilities, while not undermining the natural resources base. (DFID)

Livelihoods are the strategies that people use to hold, utilize, and transfer assets to produce income today and deal with problems tomorrow. These strategies change and adapt in response to various shocks, external influences, institutional norms and rules, and other factors. A livelihoods approach must be as dynamic as these strategies. A livelihoods approach to poverty reduction essentially considers the way that the poor manage their assets in a context of vulnerability. Poverty reduction strategies must contain policies and actions that promote sustainable livelihoods and create an institutional framework conducive to increasing poor people’s control and ownership of their assets. (USAID)

Market chain
Term sometimes used by practitioners to refer to sub-sectors or value chains. (See Sub-sector or Value chain.)

Market development
Market development, as defined by The SEEP Network, is a sub-field of enterprise sector development, in which development programs seek to help micro- and small enterprises participate in, and benefit more from, the existing and potential markets in which they do business (including input and support markets, as well as final markets). Recognizing that micro- and small enterprises do not operate in isolation but rather are part of a larger market, market development programs seek to implement programs that take market forces and trends into account. This may require that programs work not only at the level of individual small enterprises or households but also with larger enterprises, associations, or government institutions that engage in and influence markets. The ultimate goal of market development programs is to stimulate sustainable economic growth that reduces poverty—primarily by ensuring that small enterprise owners and their employees take part in the growth and reap high rewards. (See Value chains, Sub-sector, and Making markets work for the poor (M4P) for different methodologies to undertake market development programming)

Market linkages
(See Business linkages, Value chain analysis, and Sub-sector)

Making markets work for the poor (M4P)
The M4P approach is driven in part by the ambitious United Nations Millennium Development Goals to reduce extreme poverty by half by 2015. M4P seeks to “accelerate pro-poor growth by improving outcomes that matter to the poor in their roles as entrepreneurs, employees, or consumers of markets.” It incorporates not only local markets but also national, regional and global markets. Changes in policy regulation and business practices that affect the enabling environment are an integral part of the approach. The aim of these projects is to change the structure and characteristics of markets to increase participation by the poor on terms that benefit them. Note that some practitioners also refer to M4P as the “bottom of the pyramid” approach, after the title of the book by C.K. Prahalad.

Medium enterprise
(See Microenterprise and Small enterprise)

Microenterprise
A very small enterprise owned and operated by poor people, usually in the informal sector, with 10 or fewer workers, including the microentrepreneur and any unpaid family workers. This also includes crop production, as long as the activity otherwise meets the definition (USAID).

The category of micro-, small, and medium enterprises (SMEs) is made up of enterprises which employ fewer than 250 people, with an annual turnover not exceeding EUR 50 million, and/or with an annual balance sheet total not exceeding EUR 43 million. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 people and has an annual turnover and/or annual balance sheet total that does not exceed EUR 10 million. Within the SME category, a microenterprise is defined as an enterprise which employs fewer than 10 people, with an annual turnover and/or annual balance sheet total that does not exceed EUR 2 million (European Commission).

A microenterprise is defined as having up to 10 employees, total assets of up to US$ 100,000, and total annual sales of up to $100,000; a small enterprise has up to 50 employees, total assets of up to $3 million, and total sales of up to $3 million; a medium enterprise has up to 300 employees, total assets of up to $15 million, and total annual sales of up to $15 million. While these definitions are admittedly subjective and still under review, they are broadly consistent with those used by most other international financial institutions. Still, it should be noted that the numbers shown above depend heavily on choice of this (or any other) definition (World Bank)

Microenterprise development
Any activity undertaken by donors, host-country governments, or non-government organizations to improve the lives of poor people by encouraging the formation and/or improved profitability of micro- and small enterprises.

Microentrepreneur
Owner and operator of a microenterprise, sometimes an individual who is economically, socially, or educationally disadvantaged, and usually one who lacks access to the formal commercial banking system and traditional business development services.

Microfinance
The provision of financial services adapted to the needs of low-income people, such as microentrepreneurs, especially the provision of small loans, the acceptance of small savings deposits, and provision of payments services needed by microentrepreneurs and other people who may lack access to mainstream financial services.

Microfinance institution/organization (MFI or MFO)
An organization whose activities consist wholly or in significant part of the provision of financial services to microentrepreneurs.

Non-financial assistance
In the context of enterprise development, any effort undertaken to improve the performance of individual or groups of enterprises other than through microfinance. Includes, but is not restricted to, training of individual entrepreneurs, efforts to link enterprises with suppliers or markets for their output, the development and extension of technologies for use by entrepreneurs, and lobbying efforts for improvements in policies and/or institutions affecting enterprises.

Operational costs
The portion of a program’s costs that covers personnel and other administrative costs, depreciation of fixed assets, and loan losses.

Operational efficiency
The extent to which an organization succeeds in minimizing its operational costs, given the target population with which it is working. It is measured by the ratio of the organization’s operational costs to the average value of its outstanding portfolio.

Operational self-sufficiency
A situation in which an organization generates sufficient revenues from clients to cover all of its operational costs.

Opportunity costs
The value of a given set of resources in their best alternative use. As applied to an enterprise development program, it refers to the market value of the resources used to carry out that program. In particular, calculating the opportunity costs of a program requires that any funds or other resources received in the form of grants or low-interest loans be evaluated according to what the institution would have had to pay for those funds had it raised them in private financial markets.

Producer groups
Defined as individuals engaged in producing similar products that are organized to achieve economies of scale and production or marketing efficiencies. By (cooperating) organizing into producer groups, micro- and small enterprises are often able to 1) improve their access to and reduce the cost of raw materials through bulk-purchasing; 2) increase their efficiency by sharing production skills and resources; 3) enhance the quality and marketability of their products through common production standards and market-driven product specifications; 4) increase access to available financing; 5) obtain critical business services through embedded or fee-for-service mechanisms; and 6) improve their market position by having the quality, quantity, and types of products that multiple buyers demand (see Cooperatives and Inter-firm cooperation).

Remittances
The earnings sent by migrants to their countries of origin. In Latin America and the Caribbean, for example, remittances constitute a critical flow of foreign currency in the majority of countries.

Small enterprise and SME (small and medium enterprises)
Also sometimes abbreviated as MSME—micro, small, and medium enterprises (see Enterprise and Microenterprise).

Shock
Usually sudden, irregular events that significantly affect a household’s or enterprise’s ability to generate income by regular means. At the level of an economy or market, a shock is an event that disrupts established trading patterns and trends. The effects of a shock will vary among households, enterprises and markets.

Sub-sector⁴¹
A sub-sector can be defined as all the firms that buy and sell from each other in order to supply a particular set of products or services to final consumers (see Value chains)

Subsidized credit
The provision of loans on the basis of interest rates and fees that fail to cover the full long-run costs of providing those loans.

Supporting markets or supporting services
(See Business development services)

Sustainability
The sustainability of project impacts requires the development of local capacity to address recurring constraints. Recurring value-chain constraints should be addressed with efforts at policy and/or regulatory reform and commercial solutions to supporting (business and financial) services and improved inputs. Moreover, interventions should be temporary, and an explicit exit strategy needs to be developed upfront (not at the end of the project) to ensure that impacts are sustainable once project activities end.

Upgrading
Refers to a change in mind-set, improvements in skills, development of new designs or products based on knowledge of final customers, employment of new technologies, adoption of new functions within a value chain, and other actions that lead to greater competitiveness. Upgrading can include product development, technology transfer, workforce training, effective backward linkages to suppliers, as well as the use of information technology to enable firms to identify and compete in new markets. Organizing micro- and small enterprises firms is often a first step in establishing effective backward linkages to their suppliers.

Value added
(See Upgrading)

Value chain
Describes the full range of activities that are required to bring a product or service from its conception to its end use and beyond, and includes activities, such as design, production, marketing, distribution, and support to the final consumer. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Value chain activities can be contained within a single geographical location or spread over wider areas.

Global value chains are divided among multiple firms and spread across wide swaths of geographic space, hence the term “global value chain.” Evidence shows that global value chains have become much more prevalent and elaborate at the tail end of the twentieth century. Today, the process of economic development cannot be isolated from these global systems. This means that firms and workers in widely separated locations affect one another more than they have in the past. Some of these effects are quite straightforward, as when a firm from one country establishes a new factory or engineering center in another country. Some are more complex, as when a firm in one country contracts with a firm in another country to coordinate production in plants owned by yet another firm in a third country, and so on (see Sub-sector).

Value chain analysis
Focuses on the dynamics of inter-linkages within a productive sector, especially the way in which firms and countries are globally integrated. While it includes a description of actors in the value chain and an analysis of constraints along the chain (as do traditional sectoral analyses), it overcomes an important weaknesses of traditional analysis, which tends to be static and limits itself to national boundaries. Value chain analysis concentrates on inter linkages and, by doing so, uncovers the dynamic flow of economic, organizational, and coercive activities between producers within different sectors, even on a global scale.