Schuldschein loan: the German private placement goes digital

The Schuldscheindarlehen has no definition in law. It rests on the German Civil Code and the Commercial Code, as private banking magazin explains (in German). Legally it is a loan, so a lender who wants to sell its part passes the claim on by assignment, and it is not a security under the German Securities Trading Act or the Prospectus Act. Investors who report under IFRS do not have to value it at market prices.

The borrowers are mostly companies, mid-sized firms among them, plus public-sector bodies. The lenders are insurers, banks, large private investors and family offices. For the borrower the loan spreads its funding over many lenders; for the lender it opens credit to firms that do not issue bonds.

A classic Schuldschein deal has one arranging bank and many investors. LBBW describes the old process: data were typed in by hand, the loan certificate was printed and sent by post, and transfers went by fax. Each investor kept its own record of the same loan, and LBBW calls these steps time-consuming.

dwpbank, DekaBank, DZ BANK and Helaba launched finledger, a platform for Schuldschein loans built on Ethereum technology with smart contracts. According to IT Finanzmagazin (in German), it handles the issue from trade confirmation to the loan documents and cuts the number of process steps by more than half. Digital assignment and termination were planned next.

NRW.BANK was the first promotional bank to issue its own Schuldschein loan fully digitally on finledger. It lent to DekaBank, which assigned the loan digitally to DZ BANK on the same day and without paper. NRW.BANK runs its own finledger node in its bank IT. For the first time a qualified electronic signature was used for the loan certificates, and their hash values were stored on the blockchain, as IT Finanzmagazin reported (in German). dwpbank's issuance services connect its client banks to the platform.

LBBW and Boerse Stuttgart founded Debtvision, a digital marketplace for Schuldschein loans. In March 2020 Daimler issued a 25 million euro, two-year Schuldschein that was marketed only through Debtvision and arranged by LBBW on its DLT settlement platform. Investors placed orders electronically, the loan agreements were signed digitally, and the final transaction data reached all participants through tamper-proof databases. A 2017 deal of the same two firms had already used DLT, but still ran a paper process alongside.

The Frankfurt Forum on Digital Assets & Applications, organized by d-fine, put DLT-based market infrastructure on its first panel, with DekaBank among the speakers. Finance Loop's pages on tokenized bonds and the eWpG cover the bond side, where German law allows an electronic security without a paper certificate.

A loan under German law that a borrower takes from several institutional investors through an arranging bank. It is placed privately and is not a security; its parts change hands by assignment.

A bond is a security and usually trades on an exchange. A Schuldschein loan is a loan contract with each investor, needs no prospectus, and changes hands by assignment off exchange.

Yes. NRW.BANK issued and assigned a Schuldschein loan fully digitally on finledger with a qualified electronic signature, and Daimler and LBBW closed a fully digital Schuldschein on Debtvision with DLT settlement.