Germany has taken decisive steps to address its acute skilled labor shortage through innovative policies and by supporting the development of financing solutions to streamline labor migration pathways. These efforts began in 2022 with a targeted worker strategy that acknowledged the country’s need for skilled labor, followed by legal reforms in 2024 that opened the German labor market to a wider group of mid-skilled workers from around the globe. The latest initiative, ‘Skilled Labor Strategy: India – A strong Partner for Germany,’ by the ministries for labor and social Affairs (BMAS) and foreign affairs (AA), focuses on building a robust migration pathway between India and Germany. Key priorities include improved cooperation on migration, labor policies, qualification recognition, and skills training – areas where government cooperation is vital. The skilled worker strategy also provides an overview of pilot projects and initiatives that are taking the first step in translating these ambitions into actionable outcomes. These include projects like Triple Win in Kerala, which explore best practices and processes for hiring nurses, and Hand in Hand for International Talents, which aims to improve conditions and develop processes for self-managed recruitment for workers in the trades sector.
The German Development Ministry (BMZ) has also been at the forefront of exploring the use of innovative financing models in labor mobility to achieve financial sustainability, by funding programs such as the THAMM Plus Program partnership with Labor Mobility Partnerships (LaMP) and Roots of Impact. Together, we have been working on designing sustainable financing models and funding instruments that need less public capital and can attract private investment in the future.
These initiatives demonstrate the German government’s commitment to addressing Germany’s acute shortage of skilled workers. To further operationalize and sustainably scale these ambitions beyond strategy and pilot, the government could consider:
- Merging funding streams across ministries to support a holistic and streamlined vision on labor migration
- Structurally and financially supporting the expansion of a responsible private sector
- Adopting and funding innovative financing methods focusing on commercial sustainability and scalability
- Utilizing blended finance to attract private capital into nascent labor mobility markets.
From Pilots to Scaled and Cross-Sectoral Ecosystems
Working independently, various German ministries have invested in labor migration pilots across different industries and pathways, using their pilots as learning opportunities to identify best practices and bottlenecks in processes. The lessons learned through these pilots can be used to inform a broader, holistic strategy that focuses funding on scaling effective practices in labor migration. A multi-ministerial collaborative effort could also pool greater resources and funding to build sustainable and well-functioning migration ecosystem capable of training and scaling labor supply to the German labor market.
Beyond government collaboration, private sector support is essential to building scalable migration systems. Ministries increasingly recognize that pilot programs are important for learning but cannot scale to meet labor market demands alone. Instead, the focus must shift to creating robust ecosystems in source countries, including accessible language and vocational training, as well as incentivizing fair recruitment practices by private-sector actors. Recruiters play a vital role in this ecosystem, selecting qualified candidates for German employers, guiding them to quality training, and supporting their journey from selection to integration in Germany. Ensuring that recruiters operate responsibly–providing fair and transparent hiring processes that protect workers’ rights–is key to achieving sustainable and equitable scaling of labor migration.
However, responsible recruiters in the private sector of many labor-sending countries are currently early-stage or informal and face significant barriers, including:
- Complicated German bureaucratic processes. Obtaining visas and challenges with recognition of qualifications and labor market permits can result in delays and financial strain on recruiters.
- Limited access to affordable working capital loans. The liquidity gap between upfront investments (e.g. language training) and payments from employers for successfully deployed workers limits scale. (In some cases, this problem is transferred from the recruiter to the worker, who assumes the upfront costs required for migration.) There are few financing options available to recruiters that need to bridge this gap.
- Challenges in building trust with German employers. Small recruiters often lack a track record or a sizeable pipeline of ready workers for quick deployment. Lack of trust in the quality of a recruiter’s service delivery decreases the willingness of employers to provide upfront payments and consequently creates a greater liquidity gap for the recruiter.
Innovative financing to support the Private Sector
To overcome the barriers faced by private recruiters, the German government could consider implementing a cross-ministerial funding mechanism to support private sector recruitment and the broader labor migration ecosystem. Blended finance can be utilized by the government to reduce risks for private investors while accelerating sustainable practices and supporting the development of innovative financial solutions to scale and sustain labor mobility responsibly.
Blended finance combines public or philanthropic funds with commercial investments to de-risk early-stage markets, making them more attractive to private investors. For labor migration, potential solutions include:
- Guarantee Facilities: Absorbing initial losses to unlock commercial investment in migration ecosystems.
- Credit Funds: Providing affordable working capital for recruiters and other ecosystem actors.
- Innovation Funds: Testing financial tools such as income share agreements and surety bonds to address migration-related challenges.
These publicly supported mechanisms can help the recruitment sector grow until it becomes attractive to commercial lenders and can sustain itself without subsidy.
Case Study: Guarantee-backed language-skilling loan for aspiring migrant workers in India
An example of a blended finance solution is Western Union Foundation’s funding partnership with LaMP to create a language-skilling loan product for prospective Indian migrants. Many migrants struggle to finance language costs for German classes and examination, a critical requirement from German employers. To address this challenge, the pioneering initiative seeks to use a first-loss default guarantee (FLDG) to mitigate risks in this untested market.
LaMP is currently fundraising for public or philanthropic entities to provide funding to execute this guarantee program, which will enable commercial financial institutions to provide loans to this segment of aspiring migrant workers. This solution bridges the gap between migrant workers and financial institutions, enabling access to affordable loans for language training. The program aims to unlock broader commercial investment in migration-related financing as lenders gain experience in this segment.
Conclusion: Scaling Mobility through Partnerships and Innovation
Germany’s commitment to addressing its skilled labor shortage is commendable. The country’s next steps could involve enhancing collaboration across ministries and the private sector to translate high-level strategies into coordinated action. By shifting from isolated pilot projects to a more holistic approach, Germany can support fair recruitment practices, strengthen quality language and training providers, and leverage blended finance to attract commercial investment and scale this emerging market.
LaMP has worked with German ministries to explore innovative financing solutions and streamline migration processes by hosting ministerial roundtables to align on key objectives and develop actionable strategies. We believe the need to move from design to implementation of these solutions is urgent and will only be made possible through collaboration between the public and quasi-public sector, including the involvement of development banks (like KfW), and the private sector. This collaboration can be fostered by deploying win-win blended finance solutions within the context of ecosystem-building efforts.
Germany is well-positioned to lead the global labor mobility landscape. By further developing innovative financing solutions and multi-ministerial collaborations, Germany can serve as a global blueprint for scalable and sustainable labor migration pathways.
Finance Glossary
- Blended Finance: Blended finance refers to the strategic use of public or philanthropic capital to attract private investment for projects that address social or environmental challenges. By mitigating risk and providing initial funding, it creates a financial ecosystem where private investors are incentivized to support initiatives that may not otherwise be commercially viable but deliver broader societal benefits.
- Guarantee Facility: A Guarantee Facility is a financial mechanism where a third party (in this case, as a government or development institution) provides a guarantee to cover potential losses or risks associated with commercial investments. This safety net encourages commercial investors to fund projects that have a positive social or environmental impact but may be considered too risky under normal circumstances.
- Fund: A Fund is a pool of capital raised from multiple investors, which is then managed and allocated by professionals to finance a portfolio of projects or assets. These investments are typically focused on specific goals, such as supporting sustainable development or innovation, and the pooled resources allow for risk diversification and more significant impact than individual investments might achieve alone.
Glossary definitions are derived from sources such as the OECD library, and Roots of Impact.
Photo: LaMP’s Sophia Wolpers discussing innovative financing mechanisms and migration ecosystem solutions with Development Minister Svenja Schulze at the 6. Economic Policy Forum of BMZ on 21 May 2024.
Copyright: Kira Hofmann/photothek.de
From left to right: Carsten Schmitz-Hoffmann (GIZ), Sophia Wolpers (LaMP), Development Minister Svenja Schulze (BMZ), Dr. Friederike Köhler-Geib (KfW)