A boost from the USA

KfW was founded in 1948 as part of the Marshall Plan for the reconstruction of the German economy and developed over seven decades into an important instrument for the economic and financial reorganisation of Germany after 1945. In its long history, KfW has repeatedly played a key role in epochal transformation processes such as reconstruction and reunification.

Food, commodities and materials worth nearly USD 14 billion are sent to help rebuild the destroyed continent. The first supplies are shipped out to 16 countries in 1948. Eastern Europe is not taking part because the Cold War has already begun. The United Kingdom receives 25%, France 20% and West Germany 10%. Smaller countries such as Greece and Belgium are also included in the programme.

Instead of distributing the money indiscriminately, the Marshall Plan seeks to help countries help themselves from the very start. It allows them to decide how to rebuild. Shipments mainly include food, fuels and medicine. The recipient countries pay the value of these imports into counterpart funds that are used to help pay for the reconstruction of infrastructure and businesses. The shipments to Germany are worth USD 1.4 billion, or approximately nine billion euros in current euro value. Germany is the only country that is required to repay part of the funds: one billion dollars.

Start-up capital for KfW

Another difference to the remaining countries is that Germany uses the counterpart fund to capitalise Kreditanstalt für Wiederaufbau from 1949. Founded by law on 18 November 1948, the promotional bank is to fund its initial operations on the German capital market or from the budget of the American-British Bizone. When it turns out that this does not work, it receives counterpart funds from the Marshall Plan.

In its early years, KfW is deluged with loan applications but cannot approve all of them. Its loans initially focus on energy supply and housing. Roughly half the loan volume goes to the resources industry and mainly to coal and steel producers.

The reconstruction phase lasts until around 1954. The Federal Republic of Germany rises to become one of the world’s leading industrial states – much faster than anyone had expected. Its economy grows by eight per cent a year, it has full employment, and a high dollar exchange rate favours German exports. Export finance is added to KfW’s functions in 1951.

Two years later, the legislature establishes that payments of principal and interest into the ERP Special Fund from the Marshall Plan are to be used to promote the German economy on a permanent basis. Within just a few years, the Federal Republic is transformed from a hungry aid recipient into an economic power that itself will soon extend aid to other countries.

The German economy is still benefiting from the Marshall Plan funds to this day. More than seven decades after the start of the programme KfW is still supporting businesses with disbursements from the ERP Special Fund. As before, the aim is to help them to help themselves.

The bank extends low-interest loans and grants exemptions from liability to small and medium-sized enterprises, business founders and innovative companies. The ERP Special Fund has also played a crucial role in the reconstruction of eastern Germany.