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The Funding Alternatives for Germany’s Mittelstand

by Dr Mark Währisch, Director, Corporate Ratings, Alexandra Krief, Director, and Claire Mauduit-Le Clercq, Associate Director, Standard & Poor’s Ratings Services

Banking disintermediation is happening more slowly in Germany than elsewhere. Even so, Germany’s mid-market, or Mittelstand, will slowly begin to access new sources of funding to finance growth.

Held in envy around the world, Germany’s mid-market firms – known as Mittelstand businesses – are vital to its economy, contributing about one-third of total GDP. Like similarly-sized businesses throughout Europe, they are beginning to look for new funding sources to finance growth. However, the development of these alternative funding markets will likely be slower in Germany than elsewhere because its banking system remains, at present, a highly liquid and competitive lender.

That said, smaller mid-market firms will inevitably find bank funding harder or more expensive to access as the disintermediation process takes hold – in turn, increasing the importance of new sources of funding. For their part, private investors will look for greater transparency into the credit risk of mid-market debt issuers before investing. But we believe that increased transparency in this respect will lead to better capital allocation as well as more accurate and efficient pricing. As a track record of investment is built up, investors and mid-market firms will generate increased trust and, ultimately, more investment.