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08/12/2016

The Schuldschein: An investment alternative for Europe

Trade & Society

The Schuldschein: An investment alternative for Europe

Germany is leading the way in investment with the Schuldschein. [Images Money/Flickr]

The Schuldschein tool is designed to support medium-sized businesses. It will be used to encourage bilateral cooperation between German and French companies. EurActiv France reports.

Credit plays a major role in boosting economic growth. European countries could look to Germany for inspiration. For several years, the Schuldschein, a syndicated loan mechanism that can be combined with securitisation, has provided mid-to-long term financing for German SMEs (small and medium sized enterprises).

Schuldschein responds to the investment needs of businesses, and allows them to develop their activity, on both a domestic and international level. Within the space of a few years, it has become a favoured finance tool of German SMEs.

>> Read: €21 billion of EU loan guarantees for banks to boost SME lending

The semi-obligation credit, regulated under German law, is generally a loan from multiple lenders, at a fixed rate, for a period of 3 to 7 years. These lenders tend to be banks, insurance companies, or asset managers, and their loans total between 8 and 10 billion euro per year.

>> Read: Insurance companies push forward with European investment

Since 2008, the Schuldschein market has grown rapidly. Although it is reserved for medium-sized businesses, it has increasingly spread to international companies. “One third of current loans do not go to German companies,” says Jean-Philippe Brioudes, director of the debt capital markets department at HSBC France. He believes the Schuldschein is a good example of French-German cooperation.

An asset for medium-sized businesses

This financing solution brings numerous advantages, such as allowing the borrower a certain flexibility over the total amount of the loan. Reduced information requirements mean that borrowers can preserve their anonymity, and the borrowers also have the right to renegotiate the terms of the loan.

Among the notable beneficiaries of this type of financing is the French company Bel, specialists in the fabrication and commercialisation of cheese, who have been able to diversify their sources of finance and attract more foreign investment. With Schuldschein financing, companies have access to loans that is not available to them through normal bank loans.

The benefits also extend to the investors, who gain greater access to small and medium-sized businesses. Credit is eligible for refinancing with the European Central Bank.

Strengthening the French-German partnership

The French and German economies are very much intertwined. In an interview with Les Echos, the French and German finance ministers both declared their support for enhancing investment in Europe.

Michel Sapin, the French Minister of Finance, announced that the two countries would work together on common proposals for a public and private investment plan “that will be at the heart of economic growth”.

Developing the Schuldschein will thus aid the growth of businesses on both sides of the Rhine. The French arm of HSBC has already set up offices in Germany, and other countries, with the aim of helping French businesses to establish themselves abroad.

>> Read: French bosses rally around Juncker’s 300 billion investment plan

Background

Small and medium sized enterprises (SME) are the drivers of the European economy.They are large job creators, employing two thirds of the private sector.

The European Union's COSME programme for competitiveness of SMEs will run from 2014 to 2020 and has a budget of 2.3 billion euro. Since the financial crisis, banks are lending less money to small businesses, making it more difficult for them to make necessary investments.