To complement NIRSAL's first three pillars, this mechanism offers banks additional incentives to build their long term capabilities to lend to agriculture.
The mechanism is governed by the following principles:
- Incentives are awarded objectively on the basis of the holistic rating mechanism.
- Incentives are focus on "carrots" not "sticks"; abuse of NIRSAL will result in exclusion from the fund.
- Incentives are given in terms of financial support for initiatives that support agricultural lending: and in the form of non-monetary prizes
- Incentives are based on banks' scores in the holistic rating mechanism
- Awarding of incentives are announced publicly to ensure transparency
- To foster competition among top ten banks, the awards are made on a sliding scale. The top prize - "Agricultural Bank of the Year" - is N150 million, when a bank wins an award, it must submit a proposal within three months on how it will invest in building its agricultural lending capabilities. Proposals are reviewed and approved by an independent panel. Eligible types of investment include:
- Branch expansion to rural areas within a high-potential value chain (up to 50 percent of total cost)
- Establishing IT platforms that support agricultural lending
- Agricultural credit risk scoring models
- Platforms for distributing loans using technology such as mobile phone.