Farmers’ Finance.

Hauraki Plains Gazette, Volume XXXIX, Issue 5263, 16 April 1928, Page 4

Farmers’ Finance.

HURAL INTERMEDIATE CREDIT. ADDRESS BY MR. SAMUEL, M.P. An interesting address on “The Rural Intermediate Credit Act” was delivered by Mr A. M- Samuel, M.P., at the Soldiers’ Club, Paeroa, on Wednesday, April 4. As this address is of great interest to the farming community we are

publishing it in full, in serial form, the first portion appearing in our issue of April 4. The third instalment is as follows : ADVANCES AND GRANTS. Tb set the scheme going power is given to the Minister of Fina,hcei to advance to the Board, from the Consolidated fund by way of loan, sump up to a total of £400,000. Advances of this description are to be for a term not legs than twenty years as may be arranged by the Board and the Minister of Finance for the first ten years, the advance is t 0 bet interest free, and after the expiration of that period the Board is to pay interest tot the Consolidated Fund at a rate prescribed by the Minister of Finance. Not all of the amounts advanced to the Board from the Consolidated Fund are to bq made available for investment in the Board’s business. For the protection of debentureholders, one-third of all such advances is to be credited to a special redemption, fund, which is. to be invested in Government securties only : and with the resulting income' such fund is to be applied only for the purpose of redeeming debentures is u sued by the Board. As will be mentioned later, one-half of the net profits of the Board is to be credited to this, redemption fund. The remaining twothirds of advances from the Consolidated Fund 'is to be employed by the Board in carrying on its business. In addition to advances of this nature upon loan 1 , the Minister of Finance is also empowered to make an outright grant to the Board of a sum not exceeding £lo,ooo’ to cover expenditure for general administration. purposes. Here again is generous pro- ! vision for giving the Board a good start in its operations. DEBENTURE ISSUES. Attention was drawn earlier in the course of these notes to the fact that the increasing modern tendency in rural flnantee was the , disappearance of the individual mortgagee, and his replacement by corporate lending concerns, which secure the funds by the issue of bonds secured, upon an aggregate, of mortgages. , This tendency is reproduced in the Rural Intermediate Credit scheme, where fund?, will be provided by the issue of debentures secured upon the whole of the assets of the Board.

The legislation j;ives the Board power, with .the consent, of the Minister of Finance,.to issue- debentures restricted as to total .amount in that they may not exceed the sum total of the .advances from the Consolidated Fund and tli-e amount of the investments of the Board from time to time. There is a further restriction, in that the total debentures issued" are not at any time to exceed the sum of £5,000,000. The debentures will be for terms of from six months to five yeatt’s and will 'cai-ry rates of interest not exceeding 6 per cent., per annum. The debentures so issued will constitute a floating charge on the Board’s assets, and- they are expressly given priority over the .claim of the Crown in respect of the advances to the Board from "the Conlsol.idated Fund. The practical! effect of these provisions! is to (jive debentureholders a first charjje over a|ll the assets of the. Board, j including investments in the redempition fund previously mentioned, -and the mortgages, bills 'of sale, and. other investments in the, ordinary business account of the Board. ;It may be stated generally that debeniture-hollders will Have a margin over assets equal to the amount of the 'original- advance to the Board from, the Consolidated Fund; and as the maximum amount of debentures will hot exceed in any case the sum of £5,000,000, a safe margin of security has been provided for debenture-holders.

There is a f arther factor to be taken into consi .deration. During the first ten years < the. full advance to the Board, incl uding both the portion credited to the Redemption Fund and the portion en iployed in the business of the Board, is free of interest; and it may be ant icipated that the operations of the Board will, result in the accumulation ?'of considerable profits over this period. The Act provides that profits of this description are to be. credited equally to the, Redemption Fund, -previously mentioned, and to a sepai.-ate fund., which latter fund m'ay in the discretion of the Board be either invested in Government securities or in the Boa rd’s business. Thu s all profits remain with the Board and go to increase; the margin of security for debenture-holders.

1 There is one further point which I will no doubt occvcr to investors. The ! advance from the Consolidated Fund is bj r wsiy of loan: only, and consequently then question of repayment wi'll aris e in the counsel of time; is there, th erefore, any possibility of the margin ■ of security being diminished or disappearing a,s the result of partial or complete repayments to thq Consolidt ated Fund ? Thq| answer to this inqi liry lies in the fact that the Act comt ains a special provision governing n spaymen ts ; anid the practical effect of this provision, is that repayments- e qual to the amount only of all a«cu initiated -profits of the Board and all accuniuljatedi interest in the Redempl tion Fund (which, as previously stated, cor asists of one-third of all' adv; mces to the Board from the C'onsolic lated Futnd) may be made. This, tt lerefore, operates to preserve the original m argin for debentureholders.. , wihich was previously described as being of an amount equal

to the total advances from the Consolidated Fund.

Before! leaving the subject of the debentures, the notice of investors is directed to the fact that the Board is required to accept at any time debentures issued by it in settlement of amounts owing to it to the extent of the nominal value of the debentures tendered. This, provision is likely to stabilise the market value of the debentures ; for if they should fall below par in value it may be expected that there will be a demand for them from persons indebted to the Board, wlio would thus have a means of reducing their indebtedness to a certain extent without equivalent financial outlay ’on their part. The Act makes the debentures authorised! investments for the investment of trust funds, public moneys, funds belonging to various Government Departments, such as, for example, the Public Trust Office, the State Fire Office, and the Government Life Insurance, Department, also for certain savings bank moneys. These provisions all increase the sources from which funds may be expected to flow to the Board. For the benefit of lenders who prefer that class of security, provision is made in the Act for the conversion of bonds into inscribed stock.

With regard to the protection of the interests of debenture-holders in the event of the; operations of the Board not being financially successful, section 32 of the Act provides that any debenture-holder may petition the Supreme Court for appointment of a receiver on behalf of the general bbdy of debenture-boHders in the following contingencies: (1) If the Board makes default in payment of any principal or interest secured by the debenture.

(2) If the audited accounts for any year disclose a loss, on the Board’s operations exceeding 25 per cent, of the total amount raised by the Board by the issue of debentures. These provisions, taken in conjuncwith the right of the debenture•ho'ldqlrs to be paid in full before the amount borrowed from the Consolidated Fund can be <repaid, afford ample security to debenture-holders. It behoves farmers with funds to invest to play their part in helping the; scheme by investing in the Board's debentures. By so doing they will be providing funds, to assist in the welfare of other farmers, and at the same time they will have security of investment at profitable rates of interest to them'selves.

There is just one other point which it is desirable to mention at this stage. The Board will depend to the greatest extent for its funds for investment upon the public confidence in the soundness of the debentures. This confidence will not be created unless the Board adopts a sound, businesslike bapis for granting loans to farmers, and therefore the scheme should not be looked upon as a scheme for the assistance of farmers who have no proper security to offer, but as a scheme for providing security of finance at favourable ratef of interest to farmers who have reasonable propositions to offer.

THE GRANTING OF LOANS.

Having thus' examine^ 1 the means by which funds art provided for the development of the scheme, attention will now be devoted to considering the methods by which these funds are made available for the, members of the farming profession. (The fourth instalment will appear in our next issue.)