Innovative Financing Schemes - A guidebook for urban practitioners

There has been a growing discussion in recent years around the challenges European cities face in funding sustainable urban development projects. As urban challenges intensify—driven by rapid population growth, aging infrastructure, climate resilience demands and increasing expectations for better public services—traditional financing mechanisms prove insufficient to meet the complex and evolving demands of modern cities. In response, urban policy makers and practitioners are turning to innovative financial schemes (IFS) – new innovative approaches that extend beyond conventional financing tools to support sustainable urban development.

This Guidebook is based on a study of the Urban Innovative Actions (UIA) – an initiative launched by the European Union in 2015, aiming to provide urban authorities within the EU with resources to test bold and innovative ideas and solutions to address challenges they face. The study focuses on UIA projects that designed and implemented IFS, offering valuable insights into their effectiveness, sustainability, along with key factors influencing their success, and the obstacles encountered along the way.

The study screened all 86 UIA projects and relied on a comprehensive survey targeting 19 projects, capturing both quantitative and qualitative data on the types of IFS used, their characteristics, objectives, and implementation challenges. To deepen the analysis, the study also conducted in-depth case studies of 11 selected projects, providing a closer look at the unique and shared features of IFS.

WHAT ARE INNOVATIVE FINANCIAL SCHEMES (IFS)?

In this study, IFS are defined as creative and/or novel approaches used by cities and urban practitioners to mobilise, distribute and/or govern the use of funds for implementing sustainable urban development projects. These innovative financing schemes are characterised by their integration of diverse financial sources both public and private and with capacity to leverage private funding. A key characteristic of IFS is their focus on collaboration and partnerships among diverse stakeholders –municipalities, NGOs, academic organisations, private companies, national agencies, increasing efficiency and long-term economic sustainability of projects, and citizen engagement.

For more information about the use of IFS in European cities, see this report.

Some of the key IFS explored include:

• Classical funding scheme targeting innovation
• Community Land Trust (CLT)
• Crowdfunding
• Incentive mechanism
• Innovative procurement
• Local and Virtual currencies
• Revolving funds
• Social credit schemes

HOW TO USE THIS GUIDEBOOK

For cities to unlock the potential of IFS, they must develop the necessary knowledge, skills, and institutional capacity not only to design effective financing solutions but also to secure and manage funding for their successful implementation.

This Guidebook is designed to equip urban practitioners, policymakers, and city officials with practical insights and actionable strategies for effectively designing and implementing IFS. By providing a clear framework for understanding and implementing these schemes, the guide serves as a valuable resource for those looking to explore innovative financing approaches.

The Guidebook provides information on:

• Type of IFS and their main features – An overview of the IFS and their role in urban development projects
• Step-by-step guide on setting up the IFS – A practical guide outlining key steps in designing, implementing, and scaling an IFS to ensure successful execution.
• Foreseen costs in implementing the IFS - Insights into the anticipated costs associated with implementing IFS, helping cities plan and allocate resources efficiently.
• Advantages and challenges – A overview of the different benefits and potential barriers to be aware of.
• Helpful tips – Practical recommendations drawn from the experiences of UIA projects to help cities optimise their use of IFS and navigate common challenges.