Innovative Finance Challenge by UNDP

The Innovative Finance Challenge (IFC) is a joint initiative of the UNDP Istanbul Regional Hub, implemented through the EU-funded Mayors for Economic Growth (M4EG) Facility and the City Experiment Fund (CEF), funded by the Ministry of Finance of the Slovak Republic (SlovakAid). The program aims to support municipalities in designing, adapting, and testing innovative financial mechanisms to address specific local development challenges — from concept to real implemented solutions. The competition is open to local communities in Armenia, Moldova, North Macedonia, and Ukraine.

Traditional financial instruments are no longer sufficient to meet the growing needs and complex urban development challenges. Due to a lack of technical and financial resources, municipalities often miss opportunities to attract capital and diversify revenue sources. IFC offers communities hands-on technical advisory support, as well as grant funding to test recommended tools from the Solution Catalogue (Community Land Trusts, Revolving Funds, Municipal Bonds, Community Co-funding Platforms, Property Tax Enhancement, Municipal Asset Monetization) or to develop custom innovative models.

Financial solutions submitted to the challenge must address specific financial bottlenecks in local finances — issues related to own revenue, private sector engagement, investment readiness, or community participation. The main objective of the program is to move from theory to practical application of mechanisms that enhance the long-term financial sustainability and institutional capacity of local self-government bodies.

• Lead applicant status: Applications may be submitted exclusively by local self-government bodies (municipalities) from the following countries: Armenia, Moldova, North Macedonia, and Ukraine.
• M4EG Membership (Criterion E1):
  • For Armenia, Moldova, and Ukraine: Only municipalities that are members of the Mayors for Economic Growth (M4EG) initiative are eligible to apply. Municipalities that are not yet members must submit a request to join M4EG prior to submitting an application. For North Macedonia: M4EG membership is not required.
• Leadership commitment (Criterion E2): Submission of a statement or commitment letter from the mayor or deputy mayor confirming dedication to participate in the program, designating contact persons, and confirming the commitment to provide at least 10% co-financing.
• Novelty requirement (Criterion E3): The proposed financial solution must be new to the municipality (not previously implemented) OR, if it is a common tool, contain an innovative component (in the funding structure, partnership, or implementation model) that distinguishes it from routine practice.
• Joint inter-municipal applications (Criterion E4): Municipalities may submit joint applications with other communities or partners (CSOs, development agencies). In such cases, the municipality acts as the lead applicant and an official partnership document (MoU/agreement) with justification for the division of responsibilities must be provided.

• Financial support amount: Each selected municipality receives grant support of up to US$20,000 to design and implement an innovative financial solution.
• Technical assistance: In addition to financial resources, winners receive tailored technical advisory support from UNDP experts.
• Co-financing requirement: Selected municipalities are required to provide co-financing of at least 10% of the financial support provided by IFC, either in cash or in-kind.
• Eligible costs: Grant funds are directed toward designing, structuring, and implementing the financial solution, including:
  • Conducting legal and financial analysis.
  • Establishing and supporting stakeholder platforms.
  • Developing, procuring, or digitizing data, digital tools, or systems.
  • Community engagement activities and consultations.
  • Communication and awareness-raising campaigns.
  • Organizing events, workshops, or training sessions.
  • Purchasing small equipment or materials directly necessary for the functioning of the mechanism.
• Ineligible costs:
  • Debts and debt service costs (interest).
  • Reserves for losses or potential future liabilities.
  • Costs already funded under other European Union grant programs.
  • Purchase of land or buildings.
  • Exchange rate losses and negative bank interest.
  • Bonuses included in personnel costs.
  • Granting loans to third parties.
  • Purchase of vehicles.

Testing and implementation of innovative financial mechanisms from the IFC Catalogue or custom-developed solutions:

1. Community Land Trust: Establishing a non-profit structure for long-term ownership of municipal land and separating its value from buildings, enabling the construction of affordable housing, community centers, gardens, or workspaces.
2. Property Tax Enhancement: Updating and digitizing cadastral data, improving property valuation systems, and modernizing local revenue collection administration.
3. Municipal Asset Management & Monetization: Complete inventory, leasing, concessions, PPPs, or adaptive reuse of underutilized municipal properties, markets, depots, parking lots, and infrastructure corridors.
4. Revolving Fund: Establishing a revolving fund to provide repayable financial assistance for energy efficiency, renewable energy, water supply, and infrastructure modernization projects.
5. Community Co-funding Platform: Introducing digital, hybrid, or offline mechanisms for participatory funding of small neighborhood projects through combined contributions from residents, diaspora, businesses, and the municipality.
6. Municipal and Green Bonds: Preparing the municipality for bond issuance (evaluating debt capacity, preparing an investment portfolio and Green Bond Framework) to raise capital for long-term infrastructure.
7. Custom Solutions: Designing and piloting other innovative financial models focused on increasing own revenues, reducing costs, or attracting investments.

• October 16, 2026: Official announcement of the Innovative Finance Challenge.
• October — November 2026: Online information sessions held by UNDP Country Offices in participating countries.
• November 13, 2026 (23:59): Deadline for submitting online applications via email.
• November — December 2026 (Selection process):
  • Shortlisting: Review of applications against eligibility and selection criteria by UNDP teams.
  • Evaluation meetings: Interviews with leadership and project teams of municipalities with the participation of UNDP, EU, and Slovak Government representatives.
  • Final selection: Approval of the list of winners by the selection committee (at least 12 municipalities will be selected in 2026).
• December 2026: Announcement of call results.
• January 2027: Signing of formal agreements with selected municipalities.
• January — November / December 2027: IFC program implementation (provision of advisory support, preparation, and piloting of innovative financial solutions).

1. Complete the application form: Complete the official application form. If proposing a custom solution outside the Catalogue, complete section 1.3 of the form and attach supporting documents (concept notes, calculations, case study examples, etc.).
2. Prepare a commitment letter: Prepare and sign an official commitment letter with the mayor or deputy mayor confirming readiness to participate in the program, designating responsible contact persons, and guaranteeing at least 10% co-financing.
3. Prepare partnership documents (if applicable): In the case of a joint application, prepare and sign a memorandum of understanding or cooperation agreement.
4. Submit the application package: Send the prepared documents by email to the UNDP coordinator in Ukraine, Mustafa Sait-Ametov, at mustafa.sait-ametov@undp.org (cc: carolina.bianchini@undp.org) by November 13, 2026 (23:59).

Evaluation of applications is conducted on a scale from 0 to 100 points based on 7 established selection criteria:

1. Relevance of the chosen solution to the local context of the municipality (weight 20%): Justification of the solution choice to address a specific financial bottleneck, alignment with development priorities, and institutional capacity.
2. Quality and level of detail of the implementation plan (weight 20%): Feasibility of activities, timelines, responsible parties, expected results, risk assessment, and mitigation measures.
3. Feasibility and readiness (weight 20%): Legal, institutional, and technical readiness, as well as leadership commitment to pilot the solution during the Challenge period (January — November 2027).
4. Financial logic, budget, and use of funds (weight 20%): Clarity and justification of the budget, capacity of the solution to increase own revenues, reduce costs, or attract additional investment.
5. Partnerships, governance, and local ownership (weight 10%): Ownership by the municipality, clear governance mechanisms, and partnerships with public, private actors, CSOs, and financial institutions.
6. Inclusiveness, gender sensitivity, and community benefit (weight 5%): Consideration of the needs of women, youth, vulnerable groups, underrepresented communities, and local businesses.
7. Learning, scalability, and replication potential (weight 5%): Potential for adaptation, replication, or scaling within the community or across the M4EG and CEF networks.

Additional check for custom solutions (outside the Catalogue):

For proposals outside the Catalogue, a preliminary feasibility extra-screening is conducted (verifying the source of the idea, examples of successful implementation in other cities, clarity of financial flows, and legal, institutional, and technical constraints) prior to moving to the main evaluation stage.

• Application Form (Annex A): Completed electronic form in Word format with the title page included and all required sections completed.
• Leadership Commitment Letter: Official statement or letter from the mayor or deputy mayor confirming willingness to participate, designating responsible persons, and committing to provide at least 10% co-financing.
• Official Partnership Documents: Signed joint agreement letter or memorandum of understanding (mandatory for inter-municipal or joint applications).
• Supporting Documents for Custom Solutions (for proposals outside the Catalogue): Concept note, examples of successful case studies from other cities/countries, references to legal/regulatory acts, preliminary budget, or results of initial analysis/diagnostics.

• Monitoring of implementation: Winner municipalities are required to monitor the execution of the approved implementation plan and budget expenditures.
• Financial reporting: Submission of supporting financial documentation for the allocated grant funds in accordance with UNDP-approved expense categories.
• Ethical provisions and UNDP Code of Conduct:
• • Absence of conflict of interest: Applicants must not be under the influence of any conflict of interest or attempt to unlawfully influence the evaluation committee.
  • Adherence to human rights and environmental standards: Mandatory compliance with International Labour Organization (ILO) core labor standards and multilateral environmental agreements.
  • Anti-corruption and anti-bribery: Prohibition of any corrupt practices, bribery, or commission payments.
  • Prohibition of unusual commercial expenses: Inadmissibility of undisclosed commissions or payments to shell companies.
  • Zero tolerance for sexual exploitation: Strict prohibition of physical violence, sexual exploitation, abuse, harassment, verbal abuse, and intimidation.

• Compliance with eligibility criteria: Applicants must exclusively be local self-government bodies (municipalities) from designated countries (Armenia, Moldova, North Macedonia, Ukraine). For municipalities in Armenia, Moldova, and Ukraine, M4EG membership (or submission of an official request to join prior to applying) is mandatory.
• Municipal leadership commitment: Application submission requires mandatory confirmation in the form of an official statement or commitment letter from the mayor or deputy mayor, guaranteeing dedication to participate in the program, designating responsible contact persons, and securing at least 10% co-financing.
• Novelty requirement compliance: The proposed financial solution must be new to the municipality (not previously implemented) OR contain a new innovative component (in funding structure, partnership, or implementation model) that distinguishes it from routine local practice.
• Terms for inter-municipal and joint applications: In the case of a joint application by multiple communities or involving partners (CSOs, development agencies), official partnership documents (MoU/agreement) must be provided, justifying the lead role of the main applicant municipality and outlining a clear division of responsibilities.
• Targeted use and budget restrictions: Provided funding may be used exclusively for UNDP-approved eligible expenses. Using funds for debt repayment, purchasing land or buildings, buying vehicles, providing loans to third parties, or paying staff bonuses is strictly prohibited.
• Contractual obligations: Selected municipalities sign a formal agreement with UNDP regulating grant disbursement, implementation plan execution, and financial reporting.
• Ethical compliance and Code of Conduct: Applicants are required to adhere to UNDP ethical standards, particularly regarding the absence of conflict of interest, anti-corruption and anti-bribery, human rights compliance, labor and environmental standards, as well as zero tolerance for sexual exploitation, abuse, harassment, or intimidation.