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Recent research for Asian Development Bank shows gaps in financial inclusion, regulation, and education in Germany

iff Director of economics, Prof Doris Neuberger, has published a paper on financial inclusion in Germany. It should serve to give other countries examples of better practice, alternative policies and lessons for regulation of financial services. Below are the findings and reccomendations from the paper:

Germany’s bank-based financial system provides a high level of financial inclusion, measured by bank outreach and use of financial services. However, the most vulnerable individuals and small enterprises in Germany tend to be excluded or credit constrained. The quality of financial inclusion is impaired by a low level of financial literacy, which is also concentrated among specific population subgroups. The high level of financial inclusion can be attributed to relationship lending by public savings banks, credit cooperatives, public promotional banks, and guarantee banks using the “housebank” model, and financial consumer protection and credit reporting regulations and institutions. Programs involving microfinance institutions have been stopped.

To improve financial inclusion with the aim of responsible finance, the following measures are advisable:

(1) The three-pillar system of universal banks and the system of specialized promotional and guarantee banks should be preserved. Local savings banks subject to a public mission and regional principle should remain in public hands because they ensure a high bank outreach, usage of deposits and loans, as well as banking group competition. They contribute to equal living standards across regions and have stabilized the German economy during the crisis. Banking regulation and supervision should take account of the diversity of bank business models and the role of local banks to improve credit access by relationship lending. Promotional banks and guarantee banks may be increasingly used to ease access to finance for start-ups and small enterprises.

(2) Special microfinance institutions targeting unbanked individuals are rendered unnecessary if access to banking services for all is reached more directly by other measures (see in particular (3)). They may even be harmful by increasing the over-indebtedness of the poor.

(3) The right to a basic bank account still has to be implemented. It should be coupled with the right to overdraft credit and protection from attachment of a minimum sociocultural subsistence. Governments could provide for affordable bank accounts by giving incentives to banks to offer such facilities. A credit line insured or guaranteed by a public entity could eliminate payday or mobile phone loans.

(4) To protect consumers from false credit scorings by private credit bureaus, independent or public credit bureaus should be established.

(5) Financial education should be mandatory at schools. It should focus on the productive use of credit and provide the competence for a critical evaluation of financial services rather than product knowledge. To ensure the high quality of financial education programs without influence from the financial services industry, external evaluations by independent scientists have to be strengthened. However, financial education is no panacea and should not be used as a substitute for the regulation of financial service providers.

(6) To promote entrepreneurship and access to funding for start-ups and innovative SMEs, experienced-based learning methods should be adopted in entrepreneurship education, and the venture capital market needs to be further developed.

Neuberger, Doris. 2015. Financial Inclusion, Regulation, and Education in Germany. ADBI Working Paper 530. Tokyo: Asian Development Bank Institute. Available:

Forthcoming in the book:  Financial inclusion, regulation and education, ADB Institute Series on Development Economics, Springer, Tokyo.

ID: 48866
Author(s): DN
Publication date: 08/07/15

Neuberger, Doris. 2015. Financial Inclusion, Regulation, and Education in Germany. ADBI Working Paper 530. Tokyo: Asian Development Bank Institute

Created: 09/07/15. Last changed: 09/07/15.
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