Financial Inclusion, Regulation, and Education in Germany

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. Financial inclusion of consumers with the aim of responsible finance may be improved by implementing the right to a basic bank account with an overdraft facility and protection against attachment, establishing public credit bureaus, redirecting banking regulation toward the protection of borrowers in long-term credit relationships, and strengthening financial education in schools. To foster entrepreneurship and access to funding for start-ups and innovative SMEs, entrepreneurship education and the venture capital market need to be further developed.