The ILO publishes an overview on Microlending in Germany Dr. Claudia Kreuz, investigates market failure at the small end of financial transactions in Germany. Recent legislation for entrepreneurship and the need to expand the institutional supply of small scale financial services, means microlending and other such innovative solutions may be appropriate FOREWORD: Microfinance and - even more so – microcredit is generally associated with attempts to reduce extreme poverty. It has a flavour of development aid about it. What is often overlooked is that the causes that gave rise to microfinance in low income countries in the early 1980s can also be found in high income countries, obviously less pervasive and affecting a much smaller number of people: the primary cause is market failure at the small end of financial transactions. It does not pay for a commercially operating financial intermediary to handle loans below a critical threshold of between euros 15,000 or 25,000, unless there are major scaling up opportunities. This is particularly so if the bank has no way to make a realistic assessment of the potential default risk. Information asymmetry, high fixed transaction costs in finance, moral hazard and adverse selection are universal obstacles in the access to finance of small firms, single entrepreneurs and the working poor. The study by Dr. Claudia Kreuz shows how initiatives outside the conventional banking industry seek to fill the market gap in Germany. The creation of the DMI (German Microfinance Institute) in 2004 signals the growing awareness even in a country disposing of a very diversified and braid financial market that there is a real need to expand the institutional supply of small scale financial services. Recent legislation to facilitate combined grants and loans to job seekers that want to set up their own very small business (“Ich AG”) further emphasize the need for innovative solutions. Similar trends occur at the European level within the European Microfinance Network. The ILO has actively contributed to the learning process about microfinance in the North. Following the assessment of microfinance for the unemployed in 7 high income countries (1999-2001) the ILO is currently engaged in a program to advise the governments and social partners in Bulgaria, Romania and Serbia on the design of a self employment promotion schemes based on microfinance. This initiative is funded by the Government of France. Dr. Kreuz had been with the Institut for Financial Economics at the University of Düsseldorf, before joining in 2005 the Faculty of Business Economics at the TH University of Aachen. ID: 38653 Author(s): iff Publication date: 29/09/06     ILO paper: Microlending in Germany (833953 Bytes)

World Partner       EU-Partner

Created: 05/10/06. Last changed: 05/10/06.
Information concerning property and copy right of the content will be given by the Institut For Financial Services (IFF) on demand. A lack of explicit information on this web site does not imply any right for free usage of any content.