Microlending in Germany

This study shows how initiatives outside the conventional banking industry seek to fill the market gap for financial services to the poor in Germany.

It states that:

• The creation of the 'German Microfinance Institute' (DMI) in 2004 signals the growing awareness in the country of the need to expand the institutional supply of small scale financial services.
• Recent legislation facilitates combined grants and loans to job seekers who want to set up their own small businesses.

The paper evaluates the efficiency of micro-lending in Germany from the point of view of the participating bank, the non-profit institutions and the Government, and finds that:

• Microlending in Germany is heavily subsidized;
• The target group for microlending is primarily composed of unemployed persons;
• Subsidies in microlending are an efficient solution for national governments compared to the status quo.

The paper concludes by presenting the following policy implications:

• In the short-term, the focus should be on enhancing the efficiency of non-profit institutions;
• In the medium-term, microlending can partner with savings banks and cooperative banks in order to prevent the origination of a second loan market;
• In the long-term, microlending in Germany has to attract private investors to lift the burden from the government; this will only be successful if microlending is a profitable business from their point of view.