German Development Bank

The KfW, formerly KfW Bankengruppe (banking group), is a German government-owned development bank, based in Frankfurt. Its name originally comes from Kreditanstalt für Wiederaufbau, meaning Reconstruction Credit Institute. It was formed in 1948 after World War II as part of the Marshall Plan.

It is owned by the Federal Republic of Germany (80%) and the States of Germany (20%). It is led by a five-member Managing Board headed by Ulrich Schröder, which in turn reports to a 37-member Supervisory Board. The chair of the Supervisory Board changes annually between the German Federal Ministers of Finance and Economic Affairs; the chairman for 2014 is Sigmar Gabriel.


KfW banking group covers over 90% of its borrowing needs in the capital markets, mainly through bonds that are guaranteed by the federal government. This allows KfW to raise funds at advantageous conditions. Together with its exemption from corporate taxes due to its legal status as a public agency and unremunerated equity provided by its public shareholders, this allows KfW to provide loans for purposes prescribed by the KfW law at lower rates than commercial banks. KfW is not allowed to compete with commercial banks, but it facilitates their business in areas within its mandate. KfW banking group has three business units with distinct functions, as well as several subsidiaries. Lending by KfW group’s two main business units, accounting for more than 90% of total lending, is in Germany and – to a more limited extent – in other European countries. However, its largest subsidiary, KfW IPEX Bank GmbH, lends predominantly internationally. A smaller subsidiary, the German Investment Corporation (DEG), and one of the group’s smaller business units, KfW Development Bank, are exclusively active in the international arena, each within their particular business areas.

Subsidiaries & Group Units

Housing & Environment: KfW Förderbank (KfW promotional Bank), the largest business unit of the group, committed €33.8 billion in 2008, mostly for housing and environmental protection in Germany. It is especially active in promoting energy-efficient housing for owner-occupied houses as well as for landlords, both for new houses and refurbishments. Its energy efficiency standards for houses (KfW-60 and KfW-40) have become accepted standards in Germany. Concerning environmental protection, it promotes, among others, photovoltaic energy (solar cells) which has in turn received massive indirect subsidies through feed-in tariffs under the Renewable Energy Law of 2000. It also invests in municipal infrastructure such as public transport and sanitation through a sub-unit called KfW Kommunalbank (KfW municipal bank). More recently,[when?] it has also engaged in education where it provides student loans.

Small & Medium Enterprises: KfW Mittelstandsbank (which roughly translates as KfW small and medium enterprises bank), the second largest business unit of the group, provides assistance to German small and medium enterprises (SMEs) including individual entrepreneurs and start-ups. In addition to loans it also provides equity and mezzanine financing. Its financing totalled € 14.3 billion in 2008. KfW has been very active in securitization before this market collapsed during the subprime mortgage crisis. Through securitization it helped commercial banks to transfer risks from their housing and SME portfolios to the capital market. KfW also provides loans to European commercial banks to help them finance small and medium enterprises, housing and infrastructure (so-called global loans).

Development Aid: KfW Entwicklungsbank (KfW Development Bank) provides financing to governments, public enterprises and commercial banks engaged in microfinance and SME promotion in developing countries. It does so through loans close to market terms using its own resources (so-called promotional loans), soft loans that blend KfW resources with support from the federal government’s aid budget (so-called development loans), as well as highly subsidized loans and grants, the latter two coming entirely from the federal aid budget. Different country groups are offered different financing conditions depending mainly on their per capita income. All these financing instruments are part of what is officially called development cooperation and is more commonly called development aid. In German aid, the work of KfW Development Bank is called “financial cooperation” which is complemented by “technical cooperation” by GIZ and other public agencies. The main sectors of financial cooperation are water supply and sanitation, renewable energy and energy efficiency, as well as the development of the financial sector. KfW development bank also works, among other sectors, in health, education, agriculture, forestry, solid waste management. It provided Euro 3.7bn in loans and grants in 2008.

Import & Export Finance:The largest subsidiary of KfW banking group is the IPEX Bank. IPEX Bank is active in project finance and corporate finance related to German or European exports. It also promotes foreign investments in Germany. Unlike KfW banking group itself, it is in direct competition with commercial banks. Therefore, and in response to concerns voiced by the European Commission concerning unfair competition, IPEX Bank has become legally and financially independent in 2008. IPEX Bank’s main sectors of activity are ports, airports, toll roads, bridges and tunnels, railways, ships, planes, telecommunications, energy, and manufacturing. IPEX Bank had a lending volume of 17.6 billion in 2008. Another subsidiary of KfW banking group, the German Investment Corporation (DEG), takes minority equity stakes and provides loans to private companies investing in developing countries. It pursues a business model broadly similar to that of the International Finance Corporation of the World Bank Group. Its main sectors of activity are banking, agro-business, renewable energy, telecommunications and manufacturing. It lent 1.2 billion[clarification needed] in 2008.In September of 2008, as investors were scrambling to get their funds out of Lehman, KfW wired 426 million[clarification needed] to Lehman. Germany’s largest circulation newspaper, Bild, subsequently called KfW “Germany’s Dumbest Bank”


The magazine Global Finance rated KfW as the safest bank in the world in its “World’s 50 Safest Banks 2009” rating. The rating was based on long-term foreign currency ratings from Fitch Ratings and Standard and Poor’s and the long-term bank deposit ratings from Moody’s Investors Service.