Across Europe, bold municipal leaders are proving that when cities experiment, with EU Cohesion policy support - when they take risks and test new models - transformative change follows. From regenerating neglected neighbourhoods to empowering residents with new economic tools, innovation in urban finance is opening doors once thought closed.
Consider the example of ICCARus project in Ghent. Through a revolving renovation fund, low-income homeowners gained access to much-needed housing improvements without taking on debt. One participant, a single parent, was able to retrofit her home for energy efficiency, significantly reducing utility bills while improving her family’s comfort and wellbeing. This tangible human benefit, enabled through financial innovation, is what makes these schemes so powerful.
As European cities face mounting urban challenges, from affordable housing shortages to climate adaptation and social inclusion, municipalities are increasingly turning to innovative financing schemes (IFS) to move beyond traditional grant and core municipal budget based models. The European Urban Initiative's (EUI) study ‘Bridging the Gap – Exploring Innovative Financing Schemes in European Cities’ draws from twelve Urban Innovative Actions (UIA) case studies to demonstrate how cities are using EU funds to transform their financial ecosystems and catalyse urban innovation.
This is not just a study of innovative ways to mobilise, govern or distribute resources - it's a call to action. City practitioners across Europe are invited to reimagine what's possible when financial innovation meets urban ambition. With the right tools, partnerships, and mindset, municipalities can move from dependency to leadership, from scarcity to creativity. Now is the time to act: to experiment, to share, to fail forward, and to build lasting funding solutions that serve communities more effectively.
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The role of cities - from administrators to co-investors
One of the clearest lessons from the study is that cities who are serious about reaching their targets can no longer see themselves as simply fund managers, they must develop the skills to become competent and ambitious financial architects. EU-funded projects like WISH MI in Milan and To-nite in Turin demonstrate a shift in the role of local governments. Instead of delivering services directly, municipalities are acting as enablers and network facilitators, coordinating partnerships between NGOs, citizens, and businesses to maximise financial and social returns.
Today’s challenges require cities to think beyond the boundaries of core municipal budgets and unlock new sources of value and investment — an opportunity made possible through the support of EU Cohesion Policy. Municipalities have unique assets including trust, networks and the power to bring together diverse stakeholders across sectors and levels. Cites can mobilise these assets to attract and coordinate funding in ways few other actors can. Cities willing to experiment with new financial tools are seeing returns not just in euros but in social equity, environmental impact, and citizen trust.
In this new role, cities must cultivate financial literacy, embrace risk, and create space for innovation, qualities that are fast becoming prerequisites for urban leadership.
Innovative financing examples from UIA case studies
The UIA study on Innovative Financial Schemes showcases cities experiences with trialling and developing several Innovative Financing Mechanisms including local and virtual currencies, community and cooperative models, revolving funds, incentive mechanisms, public private partnerships, innovative procurement and social credit schemes. Cities both large and small are harnessing diverse approaches to unlock funding and drive impact.
Local and Virtual Currencies were developed by cities such as Heerlen (WESH project), Antwerp (Antwerp Circular South project) and Viladecans (Vilawatt project) to achieve a variety of goals including rewarding citizens for public space maintenance, reducing their energy consumption (with reinvestment in community energy projects) and supporting sustainable behaviours and local businesses.
Community and Cooperative Models were created in Brussels (CALICO projects) where a Community Land Trust (CLT) model was developed to ensure long-term affordable housing through collective land ownership. In Antwerp (Antwerp Circular South), in addition to its local currency, the city established an energy cooperative for residents to co-invest in green infrastructure.
Local and Virtual Currencies were developed by cities such as Heerlen (WESH project), Antwerp (Antwerp Circular South project) and Viladecans (Vilawatt project) to achieve a variety of goals including rewarding citizens for public space maintenance, reducing their energy consumption (with reinvestment in community energy projects) and supporting sustainable behaviours and local businesses.
Community and Cooperative Models were created in Brussels (CALICO projects) where a Community Land Trust (CLT) model was developed to ensure long-term affordable housing through collective land ownership. In Antwerp (Antwerp Circular South), in addition to its local currency, the city established an energy cooperative for residents to co-invest in green infrastructure.
A Revolving Fund structure enabled energy-efficient home renovations for low-income households via the ICCARus project in Ghent.
The city of Prato developed the ‘greenApes’ digital app to incentivise sustainable behaviour with tangible rewards through their Prato Urban Jungle project. While Milan also made use of an incentive scheme via their WISH MI project, offering digital vouchers to low-income families, enabling access to extracurricular and wellness services.
Public-Private Partnerships (PPP) were used in Fuenlabrada (MILMA project) to provide market aligned vocational training for job seekers.
Private sector resources were also mobilised by Rotterdam both through their innovative procurement scheme which saw fines from unmet social return obligations in public contracts used to fund youth employment initiatives and in their innovative social credit scheme (Rikx) which enables companies to invest in social impact projects in lieu of direct employment obligations arising from the national social return obligation in public contracts.
Classical Grant-Based Funding Schemes can also be used to leverage additional value when matched and blended with other funding sources. Turin, through their To-nite project ran a community co-financed grant programme to support local NGOs in enhancing nighttime urban safety. Similarly Ventspils and Valmiera operated a local innovation grant (ZILE) to fund startups and entrepreneurs through their UIA funded NextGen Microcities project.
So what are the top 5 lessons arising from this study for urban practitioners?
1. Citizen engagement drives success: Projects like WESH and CALICO show that co-designing with citizens strengthens community ownership and improves outcomes. IFS often succeeded when they incorporated participatory design.
2. New roles for municipalities: Cities like Milan and Turin redefined their roles, outsourcing service delivery to networks of NGOs and businesses, shifting from direct provision to orchestration.
3. Technology as enabler: Digital tools are often critical in supporting IFS development and scalability. Municipal staff and/or project partners must possess the necessary knowledge to design and operate complex schemes, such as digital vouchers, crowdfunding platforms, or blockchain technologies. For example, the IFSs developed as part of MILMA and WISH MI benefitted from the technical expertise of consortium members and private partners, ensuring that the projects could navigate the technical and legal complexities involved.
4. Sustainability and scaling: Revolving funds (ICCARus), cooperative models (Antwerp), and strategic integration (Vilawatt into Viladecans 2030) illustrate that embedding IFS into broader strategies ensures longevity.
5. Legal and policy support matters: Rotterdam’s success with BRIDGE was enabled by Dutch legislation on social return in procurement - underscoring the importance of supportive regulatory frameworks and multi-level governance.
Conclusions - the dividend of financial innovation
These UIA case studies make it clear: innovative financing is not an abstract concept but a tangible toolkit that cities can deploy to respond more effectively to urban challenges. These schemes enable cities to do more with less, tap into private and community resources, and deliver targeted, scalable solutions.
For city leaders ready to pioneer bold change, the examples here show that the tools exist and the time is now. Whether through local currencies, cross sectoral partnerships, or digital innovation, cities can take ownership of their financial futures. Every euro counts - but so does every idea.
If your city hasn’t yet explored alternative financing models, now is the moment to get started. Launch a pilot, connect with peers, invite outside perspectives, and challenge assumptions. The biggest risk is not trying.
Because at the heart of every financing model is a person whose life can be improved - a family finding safety in an affordable home, a young person getting their first opportunity, or a neighbourhood coming back to life. These are the outcomes that matter most. And they begin with the courage to try something different.
Check out programmes like the EUI’s City-to-City Exchanges to learn directly from peers and avoid reinventing the wheel. Whether it’s understanding the mechanics of a revolving fund or setting up a local currency, there are cities that have done it and are ready to share what works.
The European Urban Initiative will continue to support experimentation, scaling, and peer learning across Europe's cities. As we look to the future, the path forward is clear: finance should no longer be considered a constraint but an opportunity for innovation and a means to create more hopeful, equitable cities for all. Is your city ready to take the leap?
