Assessment of the Financial Capacity of Mahallas

In 2026, the financial capacity of districts and mahallas was significantly expanded. To improve local infrastructure and create better conditions for residents and businesses, districts received an average of UZS 250 billion each, while every mahalla was allocated UZS 5.5 billion.

The expansion of revenue-generation powers for district governors and mahalla chairpersons nearly doubled the amount of additional revenues retained at the local level. On average, districts retained an additional UZS 22 billion, while each mahalla budget received between UZS 150–200 million in additional resources.

These funds have been directed toward infrastructure development, neighborhood improvement, entrepreneurship support, and employment creation. Under the "Initiative Budget" program, UZS 7.5 trillion was allocated this year. Nevertheless, no project was selected in 2,136 mahallas, indicating insufficient local initiative in preparing and promoting development proposals.

Local performance remains uneven. Since the beginning of the year, People's Reception Offices have received more than 200 appeals from each of 87 mahallas. The high concentration of complaints suggests that local problems are not being identified and addressed in a timely manner.

Small-scale entrepreneurship programs have produced notable results. During the past six months, banks allocated UZS 18.5 trillion for microprojects. As a result, 110,000 projects were implemented, creating employment for 259,000 people.

However, outcomes differ considerably across territories. Only two microprojects were launched in each of 47 mahallas. In several districts, low-income families account for less than 15% of project beneficiaries. In 32 mahallas, home to 960 low-income households, not a single vulnerable resident secured permanent employment.

In addition, bankers assigned to 883 mahallas failed to conduct household visits, prepare investment proposals, or engage with entrepreneurs. Weak implementation performance resulted in managerial decisions: since the beginning of the year, 152 officials have been dismissed, while disciplinary measures have been imposed on another 700.

At the same time, several local initiatives demonstrate the potential of community-level development. In the Yangiobod mahalla of Angor district, covering a two-kilometer drainage canal enabled the construction of 110 service facilities, providing jobs and income opportunities for 1,225 local residents.

Another successful example comes from the Bakhtli mahalla of Arnasay district, where 20 households received loans of UZS 50 million each to establish guest houses. Each household now earns up to UZS 100 million per season, encouraging another 80 families to launch similar businesses.

Financial support for family entrepreneurship has also expanded. This year, an additional UZS 2 trillion in concessional financing was allocated for such projects. Interest rates for loans in disadvantaged mahallas were reduced from 17.5% to 12%.

The revenue base of mahallas is also being strengthened. The 2026 budget envisaged retaining UZS 600 billion within mahalla budgets. The share of land and property tax revenues retained locally increased from 10% to 15%. In addition, 10% of fines for sanitary violations and unauthorized construction are now transferred directly to mahalla budgets.

Mahallas have also been granted the authority to sell vacant buildings of up to 5,000 square meters. These measures are expected to generate an additional UZS 405 billion in local budget revenues.

Overall, recent reforms have considerably expanded the financial resources and operational authority of mahallas. Nevertheless, significant disparities in project implementation, employment outcomes for vulnerable households, banking outreach, and participation in the Initiative Budget program indicate that increased financial capacity has not yet translated into uniformly strong socio-economic outcomes across all territories.

New Mechanisms for Mahalla Development

As part of the Year of Mahalla Development and Community Advancement, a new governance model was introduced to strengthen the role of mahallas as the primary platform for addressing social, economic, and infrastructure challenges at the local level.

Ahead of the 35th anniversary of Uzbekistan’s independence, which will be celebrated under the motto “One Homeland, One Nation – Together We Build a New Life and Future,” the Government announced the “Month of Neighborhood Improvement and Compassion.” The initiative is intended to become the starting point of a long-term nationwide movement aimed at improving neighborhood cleanliness, public amenities, and the overall quality of the living environment.

To coordinate these efforts, a national headquarters headed by the Prime Minister will be established, while regional headquarters will operate under provincial governors. Provincial governors, their deputies, and heads of regional agencies will each oversee one district, whereas district officials will be assigned responsibility for individual mahallas to organize comprehensive neighborhood improvement activities.

A central element of the new model is the enhanced role of the mahalla chairperson. The chairperson will approve weekly and monthly work plans for the Assistant Hokim, Women’s Activist, Youth Leader, Social Worker, Prevention Inspector, Tax Officer, and Mahalla Banker, assign specific responsibilities, and assess their performance.

Mahalla chairpersons will also be responsible for preparing targeted local development projects by identifying unemployed residents, aspiring entrepreneurs, and families requiring credit, equipment, land, or other forms of support, and translating these needs into concrete project proposals for mahalla bankers.

The authority of mahallas to utilize vacant land will also be expanded. Chairpersons will be able to initiate land auctions for the construction of private kindergartens, schools, clinics, sports facilities, and other social infrastructure.

The Yangi Quva mahalla was presented as a practical example. Of its 51 unemployed residents, four are graduates of an agricultural technical college and each owns a 0.1-hectare household plot. The proposed solution is to establish lightweight greenhouses specializing in flower seedling production. Another example highlighted the shortage of preschool facilities, where 50 children currently attend a kindergarten in a neighboring mahalla despite the availability of a vacant 0.7-hectare site suitable for private investment.

To support neighborhood improvement, social initiatives, and income-generating activities, grants of UZS 10 million will be allocated to each “Mahalla Seven” team. A total of UZS 240 billion has been earmarked for this purpose, with the objective of implementing at least one community project in each of Uzbekistan’s 8,992 mahallas.

Methodological support for the new governance model will be provided by the National Institute for Mahalla Development. The Institute will train members of the “Mahalla Seven,” analyze local development challenges, and prepare evidence-based solutions tailored to the needs of individual communities.

The role of mahalla bankers will also be fundamentally redesigned. Banks will identify the economic specialization and growth potential of each mahalla, engage proactive residents, and support projects capable of generating sustainable employment and household income.

To improve effectiveness, each mahalla banker will be responsible for no more than three mahallas. Within two weeks, 400 new mahalla bankers will be recruited from among university graduates and young professionals and will receive practical training in high-performing communities.

Beginning on August 1, mahalla bankers will be authorized to finance projects they identify themselves using concessional resources allocated for family entrepreneurship. An additional UZS 2 trillion has been provided for this purpose, while the lending rate for disadvantaged mahallas has been reduced from 17.5% to 12%. At the same time, key performance indicators (KPIs) covering business development, job creation, and household income growth will be introduced.

The specialization of mahallas will also be expanded. State-owned banks, together with Agrostar companies, will establish integrated value chains covering production, processing, storage, packaging, and marketing of agricultural products. The program is expected to be launched in 1,000 mahallas within one month.

Additional measures are aimed at strengthening the financial independence of mahallas. Alongside the increase in locally retained land and property tax revenues, mahallas will also receive 5% of land and property taxes collected from non-residential properties, providing an estimated additional UZS 400 billion annually.

A performance-based incentive system will also be introduced. Annual awards will recognize the Best Apartment, Best Courtyard, Best Street, and Best Mahalla. Winners will receive tax incentives, while successful practices developed by the “Mahalla Seven” will be disseminated nationwide.

Special attention will be given to improving areas along highways and railway corridors. The Tashkent–Khiva railway alone passes through 285 mahallas across 45 districts. Regional authorities have been instructed to complete a full inventory of these areas within one week and prepare comprehensive improvement programs within the following two weeks.

Currently, around 100 public services are delivered through the “Mahalla Seven”. Going forward, government services will be gradually transferred to the mahalla level. In Yangi Namangan Mahalla of Norin District, a single Information and Service Center already provides 980 public services to residents of eight remote mahallas. This model is planned to be expanded to other districts, while the “Smart Mahalla” concept will be introduced in ten mahallas in each region.

The scope of social assistance and community-based services at the mahalla level will be significantly expanded. By the end of the year, 25 types of social services will be transferred to mahallas, including early disability detection, home adaptation, and placement in social care facilities. Within three months, 250 mahallas will establish day-care and home-care services, as well as “Madad” homes for people with dementia and intellectual disabilities. In addition, the “Active Life” program for older people requiring care will be introduced in 75 mahallas, alongside support centers for children left without parental care or affected by violence.

Taken together, these initiatives establish a new model of mahalla development built on expanded authority, greater financial autonomy, personal accountability, project-based management, and stronger coordination among local governance institutions. The effectiveness of the model will ultimately depend on its ability to transform additional resources into tangible improvements in employment, entrepreneurship, public services, and the quality of life within local communities.