The Credit Problem of Small and Medium-Sized Enterprises, the State Credit Policy of the Federal Ministry of the Economy and Financing by Credit Institutions, 1955 to 1963

Abstract

This paper examines the demand of German Mittelstand businesses, or small and medium-sized enterprises (SMEs) - including the Handwerk (craft sector) and retail trades - for medium- and long-term capital in the mid-1950s, and how this demand was met by mobilizing capital from banking institutions, especially from savings banks and credit cooperatives, under the regulatory framework and policy coordination of the ministerial committee (Arbeitsausschus). The Bundeswirtschaftsministerium established this committee with delegates from interested groups among the Mittelstand and financial institutions in West Germany. Although impressive economic growth came in the 1950s, with high investments in many industries with public-sector assistance, Mittelstand firms suffered from a lack of capital, which changed their structure of performance, markets and ability to finance expansion of their business. The ministerial committee drafted guidelines and coordinated the interests of each Mittelstand group and banking institution to solve the problems in a competitive market economy. As individual incomes were restored and the capital market stabilized by the late 1950s, the financial support structure of the Mittelstand economy was built on regional savings banks, credit cooperatives, and credit-guarantee associations, providing them access to external capital in the early 1960s.