Small and medium-sized enterprises (SMEs) play an important role for development. Germany is a role model for SMEs. This is due to several important factors: Germany�s local banking system, which is not profit oriented; the dual vocational system; the high social capital of strong employers� associations and trade unions; government support of SME clusters and a big, government-owned development bank. SMEs in developing countries typically suffer from limited access to long-term and affordable finance, insufficient institutions for developing a skilled class of entrepreneurs and workers, a low income, and poor policies to support economic and social upgrading of SMEs. The study illustrates that economic upgrading in developing countries is necessary, but will not be successful without social upgrading. Germany � with its high social capital within the framework of a social market economy, its financial and education system, and its government support for SMEs � can stimulate debates about SMEs in developing countries.