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The Otago Rugby Southern Lakes Scholarship aims to provide scholarships for six Southern Lakes players of school-leaving age.
Recipients will receive $5000 a year for two years to help cover tertiary education fees, accommodation, travel, specialised coaching, clothing and footwear.
A local subcommittee comprising Kelvin Collins, Rob Fiske and Simon Spark has been appointed to select the recipients.
ORFU commercial manager Mike Kerr said the idea was to identify, develop and retain homegrown talent for the future success of rugby in Otago.
"Our young rugby players are being actively approached to join other provincial unions ... it's imperative we give those boys every reason not to leave their home ground," Kerr said.
"With this initiative, we are offering a pathway for young rugby players.
"Otago rugby needs not just good players, but good people with the right attitude, determination and ability."
The ORFU will need to find $40,000 for the first year of the programme, rising to $70,000 in year two, plus a $10,000 contingency fund.
Fundraising to support the scholarship programme will begin with a charity function at Botswana Butchery restaurant in Queenstown on September 15 from 7pm.
Sales and operations general manager of hospitality company Good Group Ltd, Sarah Stacey, of Queenstown, said an array of rugby memorabilia would be among items to go under the hammer.
"We're delighted to support this cause and help offer our kids a pathway that allows them to stay in this region while reaching for the top of their game," Stacey said.