RURAL CREDIT

Hokitika Guardian, 13 August 1926, Page 4

RURAL CREDIT

REPORT OP COMMISSION. WELLINGTON, Aug. 11. The report of tiio Royal Commission on Rural Credit, which recently returned from a tour of a great part of tho civilised world, was presented in the Houso of Representatives to-day by the Minister for Finance, the Hon. Mr Downic Stewart.. The Commissioners have recommended a very elaborate scheme for the financing of the. primary industries, but the basis of the new scheme is the State Advances Office. A very considerable enlargement of the credit facilities, offered by that institution is, however, recommended in the. report.

Tlie Commissioners were Percy Harper Cox, James Jacob Essen, and William John .Poison. As a result of their investigations the Commissioners have come to the following conclusions: — 1. The administration of rural credit should he vested in a. separate branch c>f the State Advances Office to ho designated “The Farm Loan Branch,’’ with such further additions in regard to representation or agencies as may bo found necessary to extend the functions of tlio said office in conformity with this proposal. 2. It is desirable to incorporate a system of intermediate credit for the use of agriculture. 3..\ A Farm Loan Board, consisting of -Hie State Advances Board supplemented by three representatives ,of agricultural and pastoral interests, two of whom shall represent long term borrowers and olio users of the proposed intermediate credit, should he the executive, body to inaugurate and control the extended system of rural credit.

4. Registered co-operative societies, the sum of whose capital and reserves is not less than £2500, and whose membership shall! not bo less than thirty, may, on hypothecation of their securities, if the Farm Loan Board so decides, be.eligible to receive advance? for the purpose of intermediate credit of not more than 80 per cent, of the value of such securities. 5. Bodies of bona fide farmers, o[ not loss than twenty in number, who form registered co-operative Rural Intermediate Credit Associations with a capital of not less than £SOO, may, upon pooling their securities, obtain such advances, not exceeding 80 pel' cent of the value of securities as the Board may decide. 6. The amount of the advance granted and the margin., of . security should bo decided by the Board in each individual! case. 7. The system and method of valuation adopted hv . the State Advances Office should lie followed for long term loans, but that valuation should bo based on the productive value of' the land, ascertained over a period of at least five years, and the amount advanced should not exceed two-thirds of the valuation. 8. It should he the function of the Farm Loan Board to classify securities offered, and establish maxima

amounts per acre in the respective classes, beyond which advances may not bo made. 9. For. the purpose of establishing intermediate, credit and extending long term rural! credit, the Minister for Finance shTndd be given power to 1 oxpend a sum not exceeding £2U,COQ for preliminary expenses; also io make advances of public moneys lo the Farm Loan Branch for terms of not less than ten, no more than twenty, years, upon which no interest shall lie .payable for the first ten years, but thereafter interest to be paid at the rate of 5 per coni, per annum, provided that the aggregate amount so advanced for both purposes shall not exceed £500,000. 10. Local Advisory Committees he established in connexion with long term loans, when and where the Farm Loan Board may deem it advisable. 11. 11l case of any divergence of views regarding the value of securities, between such Advisory Committee and the'Valuer-General, the decision of the Farm Loan, Board should lie final. , 12. Provision should he made . for loans to be increased on a basis of the improved condition of the property, or in recognition of instalments already paid.

13. In order to facilitate land settlement, the Farm Loan Board should have power to grant applicants for selection in the case of land which is offered for closer settlement, an additional 10 per cent., based on the Board’s valuation of the land. 14. A. borrower lrqin the Farm Loan Board on (long-term mortgage should submit evidence that he is twenty-one years of age, a. British subject, and that be has been a resident in New Zealand for three years, that he lias had three years’ experience in farming, and that ho possesses average ability and capacity, is of good character, and is actually, in bona fide occupation, or intends to occupy, the land upon which tho loan is to he made. Also his application must ho favourably reported upon. .Where an applicant submits sufficient evidence that he lias had

three years’ experience of farming in the British Empire, the Board may reduce the term of residence to one year. 15. The amount advanced to each borrower should not exceed £7030. 16. Preference should he given to applicants for loans of £IOOO and-under. 17. The rate of interest on bonds or stock should not exceed 5! per cent.

18. The Farm Loan Board should be given power to authorise the issue of mortgage bonds or stock for varying i periods, in consideration of the type of farming employed, and when considered desirable in the case of virgin lands, Ito suspend amortisation payments by borrowers for a period not exceeding five years, provided that the area of the security docs not exceed 200 acres, and that tho mortgagor continues to duly work his land, and to effect improvements. 19. The issue of land mortgage bonds should not at any time exceed the value of mortgages held ns security therefor. 20. Interest charges to borrowers .should not exceed the rate paid on mortgage stock or bonds by more than 1 per cent. 21. Stock and bond-holders should have first charge, in priority to all other charges, upon (a) mortgages to the Board, or to co-operative associations or societies; (b) the amount held

by the Board upon loan from the Govi ernment; (c) the capital liability of all i shares in associations or societies, such . charge to he a floating charge until the winding up of the association or society, but not to prevent an association cr society from (leafing, in the due course of its business, with properties and moneys subject to such charge, in accordance with the provi-

sions of the proposed law. 22. The Farm Loan Board may borrow, with the consent of the Treasury. upon the security of all or any of its assets for the purpose only of providing funds to redeem bonds or deposits at maturity, if moneys in the ordinary account and reserve are insufficient, such securites to have priority to the floating charge previously created. 2d. All moneys so borrowed should be repaid out of the first capital money received by the issue and sale of land mortgage securities to replace those redeemed. 24. Money borrowed under these provisions to be upon such terms and at

such rates as the. Farm Land Board, with the concurrence of file Treasury, deems necessary and expedient. 25. Legislative provision should ho made giving land mortgage, stock bonds or securities the same favourable position as that accorded State securities, and those of local bodies. 25. Borrowers should he given cash instead of bonds, and the Dominion Treasury should be appointed to issue bonds, and to act as fiscal agents for the scheme. 27. A borrower should bo entitled to pay off the amount of his mortgage, or any portion thereof, by presenting to the Farm Loan Board on any interest period after the expiry of the first five years, .debentures, bonds, or stock, of the same series as those issued against his mortgage, and his mortgage indebtedness be relieved accordingly, and such bonds or stock duly cancelled. 28. The Farm Loan Board should have the right at any time to buy in the open market its stock or debentures, and to, cancel the same, and thereupon to release a proportionate amount.of the mortgages securing such stock or bonds. 29. Securities issued at the instance of ,the Farm Loan Board, under the authority of the suggested legislation, should bo deemed to he securities in which public moneys may be invested. 30. Tn the interest of the bondholders, three custodians of mortgage securities and collateral deposited against the issue of land mortgage bonds, stock, or securities, should be appointed ; the superintendent- of State Advances, a representative of the Audit Office, and ono to be nominated by the Minister for Finance are suggested.

31. Provision should be made for inscribing stock of £IOO and over, at the option of the investor, and the custody of small holdings of bonds for payment of interest to Savings Bank accounts should be free of charge. 32. In order to promote and encourage thrift, bonds should he issued in denominations of £lO and upwards. 33. Savings Bank systems should be promoted for the purchase of bonds. 34. The annual report and balancesheet of Farm Loan Branch should ho presented to both Houses of Parliament, if sitting, within six weeks of the end of the financial year, or, if not sitting, then within ten days after the commencement of the next ensuing session.

35. Shares in co-operative associations established for the. purpose of intermediate credit should he of £l, and shares in all new co-operative societies taking advantage of proposed intermediate credit shall he limited to £l. 36. The Farm Loan Board should he given power at any. time to demand and enforce the sale of intermediate credit securities. 37. In the ease of societies, or associations using the intermediate credit provisions, the Companies Act, 1908, .should he applied, where consistent. 38. All adequate system of warehousing produce is necessary in order to simplify the process of making advances against produce. Legislation should ho enacted to provide for the licensing and bonding of public warehouses, and. the storing of agricultural products under conditions tending to establish the integrity of.their receipts, and make them generally acceptable as security ,for-loans. . - SUMMARY OF.PROPOSALS. To briefly sum up it is proposed: (1) —That long term mortgage creditshould (ontinue to he administered by lb? State Advances Office, in which a- special farm loan branch should he constituted under the control of n Farm Loan Board, consisting of the persont State Advances Board, supplemented by representatives of the primary industries; capital to be provided by the issue of securities charged directly against the mortgages instead of the public revenues as at present; the

limit of advances to be £7OO, based on ascertained productivity up to twothirds of the value of the land. (2) That intermediate credit should Ihj provided which will enable the producer to make extended use of existing institutions, with the assistance of the Farm Loan Board. It is recommended that tlie provision of intermediate credit should ho effected by the organisation of co-operative rural intermediate credit associations, with share capital and liability, and that bona fide co-operative societies should participate. NEED FOR ECONOMY.

To further improve the facilities for credit, a method is suggested whereby warehouse receipts can lie accepted with confidence as security for moneys advanced against stored produce. It is not proposed that the present machinery for short term credit should lie interfered with.

Tf the producer is to obtain the fullest benefits of such a system as that outlined, economy of administration

must he maintained. A lost of the systems abroad provide for the payment of the necessary permanent officials, but leave room for honorary service as

directors of Associations by publicspirited farmers, who, in New Zealand. as elsewhere, are prepared to give their services gratuitously for the benefit of the community. Caro must be taken to ensure that these honorary officers are men of the highest ability and .standing in the rural community. This principle of selection is generally applied in Em-ope. and America with satisfactory results to the producers and all concerned.