Urban Challenge Fund

  • 16 Feb 2026

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The Urban Challenge Fund (UCF) marks a structural shift from grant-based urban financing to market-linked, reform-driven and outcome-oriented urban infrastructure development.

Background & Rationale

  • Approved by the Union Cabinet; operational from FY 2025–26 to FY 2030–31 (extendable till FY 2033–34).
  • Total Central Assistance (CA): ?1 lakh crore.
  • CA limited to 25% of project cost, mandating minimum 50% financing from market sources.
  • Expected to leverage ?4 lakh crore total investment over five years.
  • Implements Budget 2025–26 vision: Cities as Growth Hubs, Creative Redevelopment, Water & Sanitation.

2. Financing Architecture

  • Minimum 50% market mobilisation: municipal bonds, bank loans, PPPs.
  • Remaining share: States/UTs/ULBs.
  • Dedicated ?5,000 crore corpus to enhance creditworthiness of ~4,223 cities.
  • Positions ULBs as a bankable asset class.

Credit Repayment Guarantee Scheme (?5,000 crore)

  • For NE & Hilly States and smaller ULBs (<1 lakh population).
  • Central guarantee:
    • First loan: up to ?7 crore or 70% of loan (whichever lower).
    • Subsequent loan: up to ?7 crore or 50% of loan.
  • Enables projects of ?20–28 crore in smaller cities.

3. Challenge-Based Selection

  • Competitive, transparent “challenge mode”.
  • Linked to reforms, milestones & defined KPIs.
  • Digital, paperless monitoring via MoHUA portal.
  • Continuation of reforms mandatory for further fund release.

4. Reform-Linked Framework

Focus areas:

  • Urban governance & digital reforms
  • Market/financial reforms (creditworthiness)
  • Operational efficiency
  • Urban planning & spatial reforms (TOD, green infra)
  • Project-specific KPIs with third-party verification

5. Project Verticals

  1. Cities as Growth Hubs – economic nodes, transit-oriented development, mobility, corridor development.
  2. Creative Redevelopment – CBD renewal, brownfield regeneration, climate resilience, decongestion (esp. NE & hilly states).
  3. Water & Sanitation – water supply, sewerage, stormwater, solid waste management, legacy waste remediation.

6. Coverage

  • Cities ≥10 lakh population (2025 estimates).
  • All State/UT capitals.
  • Industrial cities ≥1 lakh population.
  • Smaller & hilly/NE ULBs via guarantee mechanism.