2.11. Glossary of Terms
Note: Definitions in this section, unless otherwise specified, are sourced from Mobilizing Finance for Development
Accelerators and Incubators
- Accelerator: Organizations which are very similar to an incubator but differ in that they usually focus on businesses that made it through the start-up phase and are poised to grow. Business accelerators will generally offer all of the services offered by a business incubator. The key difference is the level of hands-on involvement by accelerator management and/or connections to venture capital which should increase the chances of success.
- Incubator: An organization designed to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services that could include physical space, capital, coaching, common services, and networking connections.
Advocacy groups: Many countries have some form of Investment Promotion Agency which have the potential to play a large role in identifying and promoting investment opportunities. USAID and other development agencies can have a strong impact in convening, creating forums and events in which those seeking finance can engage with finance providers.
Angel investors: Also called informal investors, angel funders, private investors, seed investors or business angels, they invest in entrepreneurs and their businesses in the earliest phases. Angel investors typically invest their own money in exchange for equity or convertible debt. Because they are often closer to the entrepreneur, they may also provide some mentorship.
Central banks: A national bank that operates to establish monetary and fiscal policy and to control the money supply and interest rate (Source: Merriam-Webster).
Commercial banks: A non-government affiliated bank that exists to handle the everyday financial transactions of businesses and individuals (Source: Merriam-Webster).
Commercial investor: An individual, institution, or group of investors, in a for-profit business or enterprise involved in the buying and/or selling of goods and/or services that are expected to generate cash flow (Source: Business Dictionary).
Credit bureaus: An agency that researches and collects credit information on individuals and sells that information to creditors when they are making decisions on loans.
Credit unions: User-owned financial intermediaries. Members usually share a common bond based on a geographic area, employer, community, or other affiliation. Savings and credit are their principal services, although they can offer payment services, money transfers, and insurance as well. In development, savings and credit cooperatives can reach clients and areas that are unattractive to banks.
Development finance institution: National and international development finance institutions (DFIs) are specialized development banks or subsidiaries set up to support private sector development in developing countries. They are usually majority-owned by national governments and source their capital from national or international development funds or benefit from government guarantees (Source: OECD.org). USAID is the largest overseas donor finance institution.
Entrepreneur: An individual or group with an independent idea allowing them to start and own a business, provided financing becomes available.
FinTech: A broad term that has expanded to include virtually any technological innovation in the financial sector.
Institutional investors: These include pension funds and insurance companies with large amounts of cash inflows that typically need to be invested over the long-term. Institutional investors are important because of their size and huge appetite for debt and equity. While institutional capital in developing countries remains relatively small, it is growing rapidly and is generating interest as to how it can be unlocked to support development.
Matchmaking platforms: Platforms designed to connect finance providers with firms needing investments (typically SMEs) and provide resources to facilitate transactions while not becoming a party in those transactions.
Microfinance institutions: Overseas organizations that make individual microcredit loans directly to villagers, microentrepreneurs, impoverished women and poor families. An overseas MFI is like a small bank with the same challenges and capital needs confronting any expanding small venture but with the added responsibility of serving economically-marginalized populations. Many MFIs are creditworthy and well-run with proven records of success, many are operationally self-sufficient (Source: Principles of Microfinance).
Municipality: A city or town that is empowered with a local government. Municipalities may take on the role of finance providers or finance seekers.
Policymakers & legislators: People who create ideas and plans for government regulations. Policymakers and legislators set the regulatory framework for the local financial environment.
Regulators: People who uphold the laws in a region. Regulators measure actions against present law.
Securities exchange: An organized and regulated market facilitating the purchase and sale of securities.
Small and medium-sized enterprise (SME): Small and medium-sized enterprises are a primary target for international development in the financial sector. SMEs are frequently the most vulnerable and have the highest level of difficulty acquiring financing due to their limited assets.
Venture capital and private equity: Financing provided to startup companies and small businesses that are believed to have long-term growth potential. For new companies with a limited operating history, venture capital can be an important source of capital, however the main downside is that the investors usually get equity in the company, and thus have a say in company decisions.