Urban Challenge Fund (UCF)
Context:
The Union Cabinet has approved the UCF, a new Centrally Sponsored Scheme (CSS) under the Ministry of Housing and Urban Affairs (MoHUA), with a Central Assistance of ₹1,00,000 crore.
The Fund will be operational from FY 2025–26 to FY 2030–31, with an extendable implementation period up to FY 2033–34.
It gives effect to the Government’s vision announced in Budget 2025–26 to implement proposals relating to Cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation.
Objective:
To shift from grant-based financing to market-linked, reform-driven infrastructure creation.
It supports "transformative and bankable" projects selected through a competitive "challenge mode."
Funding Pattern:
Central Assistance covers 25% of the project cost.
Cities must raise at least 50% of the project cost from market sources (municipal bonds, bank loans, PPPs).
The goal is to mobilize a total investment of ₹4 lakh crore in the urban sector over the next 5 years.
Eligibility:
Cities with a population of 10 lakh+ (based on 2025 estimates).
All State/UT Capitals.
Major industrial cities with a population of 1 lakh+.
Special Provision:
Hilly/North-Eastern States and smaller ULBs (population < 1 lakh) are eligible for support under the Credit Repayment Guarantee Scheme.
Key Components:
Credit Repayment Guarantee Scheme:
A ₹5,000 crore corpus to enhance creditworthiness of 4,223 cities (including Tier 2/3).
The Centre guarantees up to ₹7 crore or 70% of the loan amount for first-time loans.
Focus Areas are:-
Cities as growth hubs
Creative redevelopment
Water and sanitation
important economic nodes,
integrated spatial economic & transit planning - including greenfield and semi-greenfield developments