SMEs: Germany’s fourth pillar?

Louise Bowman
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The SMEs that dominate the German economy continue to rely heavily on local relationship banks for finance. But the special circumstances of some companies and the eagerness of non-bank lenders to get into the market mean that funding through such instruments as Mittelstand-focused bonds, Schuldscheine and subordinated debt is becoming more prominent.

When German agricultural holding company Ekosem-Agrar needed to raise money to expand last year, one thing was clear – it was not going to go to the bank. "If there is one lesson we have learned from recent years it is that you should not depend on the banks," says Wolfgang Bläsi, chief financial officer and managing director of the firm. "I don’t see very many German companies that don’t get financing primarily from the bank," he concedes, but he warns that "in the long run it will not become easier, it will only get more difficult".

Bläsi’s firm is unusual: it is based in Walldorf, a prosperous town in the state of Baden-Württemburg, but all of its activities are located in Russia. These are extensive – the firm has 173,000 hectares of agricultural land in the country and an annual milk output of...