by Press Information Bureau
Urban Challenge Fund introduces competitive, market-linked financing for cities, combining Central assistance, reforms, and private participation to deliver bankable, outcome-oriented urban infrastructure nationwide.
What is the Urban Challenge Fund?
Urban Challenge Fund (UCF) is a new Centrally Sponsored Scheme of the Ministry of Housing and Urban Affairs with Rs 1,00,000 crore Central assistance (FY 2025–26 to FY 2030–31, extendable by three years) to support transformative and bankable urban projects through a competitive “challenge mode”. This will lead to a total investment of Rs 4 lakh crore in the urban sector over the next five years, marking a paradigm shift in India’s urban development approach from grant-based financing to market-linked, reform-driven, and outcome-oriented infrastructure creation.
The core idea is that urban infrastructure cannot be funded by public finance alone and must access markets through bankable projects. Under UCF, cities will be supported to undertake projects under three verticals: “Creative Redevelopment of Cities”, “Cities as Growth Hubs”, and “Water and Sanitation”. Cities will be expected to undertake reforms in urban governance, urban finance, and urban planning.
Rejuvenation of city cores with the refurbishment of legacy infrastructure will be a focus area. Greenfield and semi-greenfield cities with strong economic anchors will be promoted as growth hubs. The thrust will be on garbage-free cities and sanitation to ensure clean urban environments. Integrated Command and Control Centres, dump sites, and legacy waste remediation will receive special attention.
Twenty-five per cent funding for projects will be provided from this fund, subject to the condition that 50 per cent is raised from the market, while the remaining 25 per cent can be funded by States/Union Territories or Urban Local Bodies, or raised from the market. Private players may also participate as partners with financial and managerial capability to build and manage city infrastructure.
A Rs 5,000 crore corpus has been created for a Credit Repayment Guarantee so that cities with populations below one lakh, and all cities in hilly and northeastern States/UTs, are eligible to raise market finance with repayment support. For the first time, small Urban Local Bodies with populations below one lakh, along with all cities in hilly and northeastern States/UTs, will be supported through a Credit Repayment Guarantee Scheme under which 70 per cent of their loan, up to Rs 7 crore, will be guaranteed, enabling smaller ULBs to access market finance.
Describe the Credit Repayment Guarantee Scheme
To facilitate first-time access to market finance for all cities/ULBs in northeastern and hilly States/UTs and smaller ULBs (population below one lakh) in other States/UTs, a Credit Repayment Guarantee Scheme of Rs 5,000 crore has been approved. The scheme provides a Central guarantee of up to Rs 7 crore or 70 per cent of the loan amount, whichever is lower, for first-time loans. On successful repayment of the first loan, a Central guarantee of up to Rs 7 crore or 50 per cent of the loan amount, whichever is lower, will be provided. This effectively supports projects worth Rs 20 crore for first-time borrowers and Rs 28 crore for subsequent projects in smaller cities.
How is it different from other missions of the Ministry of Housing and Urban Affairs?
To be eligible for 25 per cent Central assistance, at least 50 per cent of the project cost must be mobilised through market finance such as loans, bonds, or PPPs. Projects are selected through a challenge mode, and reforms in urban governance, urban finance, and urban planning are integral to the scheme’s design.
What type of projects are eligible for this fund?
UCF supports bankable, transformative projects aligned with three verticals—Cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation—with clear outcomes, readiness, and a credible market-finance plan. Projects already funded under AMRUT 2.0, SBM 2.0, or other Centrally Sponsored Schemes are not eligible.
Describe the different verticals under the Urban Challenge Fund?
Creative Redevelopment of Cities: Focuses on revitalising congested central business districts and historic cores, upgrading legacy infrastructure, improving public spaces and mobility, enhancing flood resilience, and enabling land-value capture.
Cities as Growth Hubs: Strengthens city regions as economic engines by connecting economic nodes and improving competitiveness infrastructure.
Water and Sanitation: Addresses legacy gaps and vulnerable areas, moving cities toward service saturation with sustainability and reuse or circularity.
Examples of projects and activities under UCF
Creative Redevelopment: Delineation of cores, upgrading legacy infrastructure such as drainage, water, sewerage, and public spaces, enabling land-value capture, rearranging public land, redevelopment models, cultural and heritage revitalisation through placemaking, and historic core renewal with traditional architecture.
Growth Hubs: Projects around strong economic anchors such as industry, defence, tourism, ports, and medi-cities, including trunk infrastructure, connectivity, and integrated spatial, economic, and transit plans.
Water and Sanitation: Legacy infrastructure upgrades, non-revenue water reduction, metering, reuse of treated water, flood mitigation, rurban water and resource processing grids, and focus on swachhata.
Which cities are eligible?
All cities across the country are eligible under the Urban Challenge Fund.
Describe the reforms under the Urban Challenge Fund?
UCF has a strong reform thrust, including:
Market and municipal finance reforms, such as creditworthiness, asset registers, revenue enhancement, and market leverage.
Governance and digital reforms covering staffing, digitised services, and project monitoring.
Operational and capacity reforms addressing readiness, quality, and operations and maintenance sustainability.
Urban planning and spatial reforms, including integrated land-use, mobility, economic planning, and climate resilience.
Project-specific reforms such as KPIs, safety-by-design, monitoring, and independent verification.
How will UCF encourage private sector participation?
UCF is designed to crowd in private capital by making projects bankable and reducing risks for lenders and private partners through mandatory market financing, PPP-friendly structuring, project preparation support for DPRs and financial modelling, and Credit Repayment Guarantees for smaller ULBs to improve lender confidence.
How will the Central Government support States and UTs in capacity development?
Under the Urban Challenge Fund, dedicated provisions have been made for project preparation and capacity building at national, State/UT, and city levels.
