Taking stock of AID"s microenterprise portfolio : background and conceptual overview

undertook a major stocktaking of its microenterprise development activities to identify effective projects and programs and the factors responsible for their success. This paper provides a conceptual overview of microenterprises to help clarify some of the issues involved in the stocktaking exercise. After an introductory review of the exercise, Section 2 presents a brief history of microenterprise development and of A.I.D."s involvement in it. Section 3 examines the nature and characteristics of microenterprises, locating them midway between the survival activities of the very poorest and more complex small-scale enterprises and identifying the entry barriers between these levels of economic activity. It also presents a framework for comparing programs by distinguishing three approaches to microenterprise development: (1) enterprise formation, which intregrates those in the survival-oriented economy into the microeconomy; (2) enterprise expansion, which improves the performance of existing microenterprises; and (3) enterprise transformation, which graduates firms from microenterprises to small-scale enterprises. Section 4 focuses on program performance as measured by the criteria of impact on beneficiaries, cost-effectiveness, and institutional sustainability. Section 5 outlines the major factors which influence program peformance: targeting, strategy, credit tactics, technical assistance/training tactics, and institutional factors. An appendix profiles the 32 microenteprise assistance programs reviewed during the exercise.