Narrow Escape for German Real Estate Crowdfunding, Green Crowdinvesting Now in Legislator’s Crosshairs



After multiple formal and informal discussions with representatives of the crowdfunding sector, consumer associations and the German financial establishment, the Financial Committee of the German Parliament has drawn its conclusions from the review of one year of operation under the German crowdfunding regulation, the Kleinanlegerschutzgesetzt (KASG, Small Investor Protection Act). These conclusions will be further debated next week and voted into Law in the summer.

The legislator has chosen the path of containing the expansion of crowdinvesting. Real estate crowdfunding narrowly escaped a ban, but green crowdinvesting is now in the legislator’s crosshairs.

German Crowdinvesting Remains Very Constrained

The requests of representatives of the crowdfunding sector to enlarge the scope of crowdinvesting have not been heard. On the contrary, the proposals made by the German Crowdfunding Association to that end were met by opposition from the representatives of the Credit Institutions, the consumer associations and the supervising authority BaFin.

The Financial Committee therefore rejected the proposal to extend the prospectus exemption of crowdinvesting ‒which currently applies only to the suboptimal shareholder loans, to all securities, including equity shares. The committee also concluded against raising the threshold of fundraising requiring a prospectus from €2.5 million to €5 million, and in favor of keeping the crowdinvesting ceiling per project per retail investor at €1,000 (€10,000, if qualified investor).

Further, the committee wants to strengthen BaFin’s vetting and control of the platforms, as well as the control of the projects’ Information sheets.

The Crowdfunding Association felt the pinch, but prefers to focus on a better future:

“The legislator has failed again to create a harmonized regulatory framework. The second evaluation of the KASG planned for 2018 will give Germany another chance to define a regulatory framework that will foster market growth, as it is done in other European countries,” said Jamal El Mallouki, Chairman of the Board of the Crowdfunding Association and Managing Director, CrowdDesk.

Real Estate Crowdfunding Was Not Axed

On one issue, however, the German crowdfunding sector breathed a sigh of relief: the proposal made by credit institutions to exclude real estate crowdfunding from the KASG has been taken off the table.

The opponents to real estate crowdfunding had alleged that real estate should be excluded from the crowdfunding exemptions because real estate projects did not foster innovation, as projects in crowdfunding should, and because crowdfunding them could trigger to a real estate bubble. These arguments were successfully rebuffed.

“This is a huge relief. The real estate projects financed through crowdfunding are urgently needed. Crowdfunding helps finance mid-size real estate developers that banks are not interested in funding. These developers satisfy a very strong demand for new living space on the outskirts of German large cities. If the government had shut down real estate crowdfunding it would have completely unnecessarily deprived the market from a well-working solution,” explained Carl Friedrich von Stechow, head of Real Estate at the Crowdfunding Association, and Co-founder and CEO of Zinsland.

Nevertheless, the current restrictions imposed by the KASG remain too strong:

“The upper limits of €2,5 million investment and €10,000 per investor are too low for some real investment projects. We will therefore have to deploy a second type of offering, next to the prospectus-exempted ones. We will offer real estate securities through other vehicles that are compliant within the regular securities and financial services laws. However, we will keep the spirit of transparency of crowdfunding. Investors will invest in single projects and control the destination of their funds,” Carl Friedrich von Stechow added.

The Legislator Sees Conflicts of Interest in Green Crowdinvesting

Next to real estate, green Crowdinvesting is also a very successful branch of German crowdinvesting. Its most common form is the refinancing of existing renewable energy (photovoltaic, wind and bioenergy) plants through platforms such as fairzinsung, Greenvesting, GreenXmoney LeihDeinerUmweltGeld und Wiwin. The yield is guaranteed by feed-in tariffs. Other platforms, such as Bettervest, specialize in energy-efficiency projects. Several, such as ecoligo facilitate investments in renewable energy in developing countries. Many of the platforms are not only financial brokers between issuers and investors, they are also expert advisors, shareholders, or service operators for the issuers.

In the eyes of the legislator, human or capital ties between issuers and platforms pose a risk of conflict of interest and should be forbidden. According to the committee, a platform tied to an issuer would not be able to vet its projects with the necessary objectivity, hence would not properly defend the interests of the investors.

The platforms regard the legislator’s concern as unfounded and its proposal as counterproductive. The existing law already requires full transparency about the links between issuers and platform. Investors can therefore decide on an informed basis whether they want to finance projects. A transparent connection with project owners can ensure a high-quality project selection If a platform is an expert in sustainable operations for the issuer, for example, there is no conflict of interest. On the contrary, the interests of the platforms are aligned with the interest of investors.

“GreenVesting sees itself as a consultant and solution provider in the field of renewable energies. Our expertise lies in the technical and commercial assessment of renewable energy projects and their business risks. Having ties to the projects puts us in the same boat as investors, which is good for them. It shows that we are convinced by the project in question. And, of course, we do not want to lose money,” explained Peter Walburg, Managing Director of Greenvesting.

The new scheme proposes to exclude the provision of a service to the energy projects. This could have a negative impact on the quality of the project and thus on the protection of the investor.

“With years of experience in the field of solar energy and development cooperation, we not only select our projects carefully, but also look after them to ensure their quality. It is particularly important to ensure the sustainability of operations in the developing countries where our projects are carried out. Our interests are therefore fully aligned with our investors,” said Markus Schwaninger, Chief Financial Officer, ecoligo.

Greenvesting projects have delivered attractive returns, but they also meet other customer expectations:

“We live in a very different world from 20 years ago. People are not interest only in high yields. They do not want to invest in companies that pollute the environment. They want to know what their money does. We raised €130,000 for a solar plant in Ghana in a week. I am very proud of my fellow citizens for doing this,” Peter Walburg added.

Crowdfunding has been identified at European Union-level as a preferred means to engage citizens in the transition to renewable energy.

“We continue to be very open for a purposeful dialogue with the legislator with the goal to create a regulatory framework which strengthens the crowdfunding industry, consumer protection and the European Capital Markets Union,” El Mallouki concluded.


Therese Torris, PhD, is a Senior Contributing Editor to Crowdfund Insider. She is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique.

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