Theory of Change - v3.0

From underserved demand
to productive credit

How European Ethical Bank helps community organisations become last-mile lenders on shared infrastructure, uses authentic sustainability as part of how it judges risk, and builds a replicable, growth-agnostic model of community banking.

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01 - The change

Four mechanisms, working at the same time

A banking licence and capital are preconditions, not the change itself. The change happens when four things run together: existing community organisations become last-mile lenders on shared infrastructure; authentic sustainability enters the risk models as a real input into credit decisions; credit policy improves local circularity and liquidity in productive sectors; and governance is designed to be replicated rather than scaled. Success looks like around 30 community-focused banks across the EEA on the same infrastructure, not one big bank with branches everywhere.

02 - What the model needs

Capital is the fifth input, not the first

Four things have to exist before money matters: a documented real-economy financing gap of roughly EUR 475B a year; a network of competent local lenders who hold the relationships but lack the infrastructure; a mature methodology for measuring authentic sustainability (Common Good Matrix v5.1 and UNRISD SDPI); and a FairShares governance form that prevents mission drift. The three-class capital stack - A-Type stewards, B-Type strategic partners with first-loss skin in their own pipeline, C-Type permanent patient capital - funds the build and absorbs early risk.

03 - What partners keep

Local autonomy is the asset, the core is the commodity

The most common concern from local ethical and cooperative banks is not cost - it is the fear of losing the brand, the member relationship or the right to make their own credit decisions. The architecture starts from the opposite premise: those stay local and the split is written into the constitution, not renegotiated case by case. Migration cost - data, parallel-run, retraining, regulatory re-mapping - is funded from the C-Type catalytic pool and the shared operating budget. A partner joining in Year 2 inherits the work done for the partner who joined in Year 1.

04 - Activities and outputs

One licence, one core, six productive verticals

Activities are ordered by causal weight: equip partners and write the credit policy first; the UAB licence in Lithuania with EU passporting and the cloud-native platform make that legal and operational. Outputs are verifiable from the outside - five to eight anchor partners at launch, a loan book focused on habitats (30%), production (25%), energy (15%), food (15%), education (7.5%) and inclusion (7.5%), a FairShares charter with a mission lock and a 10% surplus cap, passporting reach of up to 30 EEA countries by Year 3, and a published replication kit.

05 - Outcomes

Cheaper credit for the real economy

If the outputs land as designed, local lenders increase lending capacity without losing their brand or their members, real-economy credit becomes cheaper than speculative credit, and gross loan yield moves from around 3.0% in 2027 toward 2.0% by 2031. The prudential shape holds: CET1 in the 14-18% range and a loan-to-deposit ratio at or below 85%. Partners share governance, not just infrastructure - surplus above the cap flows into a cost-reduction fund that lowers fees and borrower rates.

06 - The longer arc

A category, not a successful experiment

Impact is the part not directly controlled: the EU real-economy financing gap starting to close, and community-focused banking copied across the EEA. The leverage that makes it plausible is simple - each euro of A-Type or C-Type capital supports roughly ten euros of productive lending through the deposit-creation mechanics of a regulated bank, and B-Type capital does similar work at partner level. The model is not about how much capital is raised; it is about how productively each euro is put to work and how many partners are equipped to do the same.

07 - Assumptions and risks

The load-bearing beams, listed openly

The theory rests on the UAB licence arriving on the 2026 horizon with passporting from Year 1; on the FairShares exclusions holding (consumer credit as a profit centre, cards-as-profit, securities, speculation, fossil expansion, arms, gambling); on A-Type stewardship surviving the founder transition; on the 10% surplus cap and cost-reduction fund staying enforced; and on no eurozone crisis severe enough to interrupt SME credit demand. Regulatory recognition of authentic sustainability does not arrive in a single moment - it grows in stages.

08 - How we will know

Two views of the same numbers

The same indicators are reported twice: a plain-language view for partners and members, and the regulatory format kept intact so supervisors and auditors can read it without translation. Impact is tracked against the EU financing gap and the number of institutions running compatible infrastructure; outcomes against gross loan yield, CET1, LTD, LCR and partner loan-book growth; outputs against anchor partners live on the shared core, loan-book mix and surplus distribution; activities against the partner onboarding pipeline and regulatory dialogue milestones.

Read the full Theory of Change

The complete v3.0 document, including the full indicator set and governance detail.