Farmers’ Finance.

Hauraki Plains Gazette, Volume XXXIX, Issue 5264, 18 April 1928, Page 4

Farmers’ Finance.

RURAL 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., tit 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 fourth instalment is as follows :— CREDIT ASSOCIATIONS. The first of these, methods is one which is important and interesting, in that it will provide scope for collective or co-operative action on the part of the farmers.- There has for some years past been a. demand for tile provision of machinery to enable farmers to combine for the purpose o£ financing themselves as individuals on their collective financial strength as a group. The Act meets this demand, for it provides the means for farmers to unite in forming a special class of limited liability 'companies— Co-operative Rural Intermediate Credit Associations they are called — to obtain advances from the Board, to be lent to the shareholders upon approved securities.

Twenty farmers are required to form. an association, and the minimum share capital which each shareholder must subscribe for is 25 £1 shares. Of course, as in other limited liability companies, the full amount of the shfire capital may not be found to 'be required immediately, and therefore in -many associations probably only a portion of the share capital may be called up at the outset.

A shareholder wlh'o obtains a loan from the Board is required to take up shares to the nominal value of onetenth of the amount of the ’loan which ihe obtains, provided of course that in any case the minimum share contribution is 25 £.l shares, and! a person obtaining a loan of under £250 would, therefore have to take up 25 shares. The share capital taken up represents the 'full extent of a member’s liability in respect of amounts owing by other members of the association. There is no joint and several liability. , ' It is convenient to mention here that oncet a member of an association has repaid a loan obtained from the association, he is entitled to surrender his shares, and receive their value, provided that his retirement would, not reduce the number of members below twenty. To obtain an advance from the Board, an association must put before it a definite proposal. In other words, it does not obtain a general adivan'cei from the Board, and; then "proceed to consider applications from its members, but, on the other hand, it first considers an application by a member, and If it approves the apr plication, submits it to the Board: for consideration, and after approval for an| advance by the Board to the association of a, sum sufficient to enable the .latter to grant the advance. Thus, the Board has the opportunity of approving qach individual loan by an association before it is. granted', and. this in itself should assist in creating public confidence in the security for the Board’s debentures. The associations are the immediate debtors of the Board in respect of funds invested: by it in this manner, and for this reason there are certain statutoiy restrictions affecting associations, and the Board is also given some measure of control over them. For example, t ! he ; consent of the Board will have to be obtained to the formation of an association, ar.cl once formed the application of profits:made by an association, will be under t'hq control of the Board,, to the extent that the Board may require sufficient reserves built up before dividends are paid. Again, the local representatives of the Board, the district intermediate credit supervisors, are automaticiflly directors of all associations formed, within their respective districts, and the Board! is also given power to appoint any other member of an association to be a director as its representative, a provision: designed to meet cases where it is. impracticable for the district intermediate 4 credit supervisor to attend all meetings of any given, association. These provisions, and' other provisions to which it is not necessary to refer, here will all operate to the benefit of shareholders in associations, who will, of course, have a stake in the association to the extent of thei’r paid.and unpaid share capital ; and they will thus be provided with an assurance that their interests will be subject to special safeguards. Tn addition to obtaining funds- from the Board itself, associations may, with the consent of the Board, arrange 'for temporary accommodation from banks or financial institutions. The obtaining of funds either from the Board or from banks or financial institutions and the re-lending of those moneys to shareholders upon approved securities, constitute the exclusive functions of associations so formed, am] they will have no power to act in any other manner. . SPECIAL CONCESSIONS. The Act confers a number of .special privileges and concessions upon associations. By section 18 the Minister of Finance is empowered to make advances up to £5OOO to the Board, ami the Board in turn is authorised to lend this amount to associations in sums not exceeding £25 in the case of each, association towards payment of the preliminary expenses of establishing them. Amounts So advanced to associations are, to be by way of loam, free of interest for such period not exceeding ten years as the Board may prescribe.

No fees are payable to the 'Registrar of Companies on registration of an association, and the- certificate of incorporation and' certain oth<sr documents are exempted from stamp duty.Furthermore, no annual license fees are payable. This represents l p. saving

of some £l4 on incorporat'on, and an annual saving thereafter of at least £2 Ids (sections. 42 (4) and 59).

CONDITIONS AS TO LOANS.

The conditions upon which loans may be granted, with the approval, of the Board, to shareholders ar.e closely restricted as regardjs the purposes of the loan, the maximum amount which may be granted in an individual case, the maximum rate, of interest, and the periods for which the loans may be granted. Loans may only be granted for certain approved purposes, which are se,t out in the Act as follows :—

(a) The clearing, fencing, draining, and general improvement of land in the occupation of the applicant; (b) the erection, of buildings on apy such land ; (c) the purchase of implements, stock, seeds, plant, trees, and other things required in respect of the occupation and use of any land ; (d) the payment of any mortgage, debt, or other liability of the applicant incurred' in relation to farming operations ; (q) any other purpose in relation to farming operations that may be approved by the Board. Furthermore;, no loan, is to be granted for a period exceeding five yea.iis, for a greater sum in any individual case than £lOOO, or at a rate of interest exceeding 7 per cent per annum. For the present the Board has fixed the* rate of interest payabl- by assoat 6 per cent., a reduction of % per cent, from the rate of interest payable by farmeirs and co-operative societies borrowing direct from the. Board. Associations, however, will not be pqimitted to re-I,encl the adlvances from the Board at a rate less than 6% per cent., and) in respect of the margin of % per cent, will be required to apply % per cent towards the expenses of management and the other % Per cent, to establishing a reserve fund. In effect the general lending rate of the Board: is. 6% percent., but a concession of % percent. is made to associations in order to enablq them to re-lehd monevs to their shareholders at the same rate as farmers borrowing direct to the Board are required to pay, and to enable the associations to meet the costs of management and set p reserves against contingencies. Appilications for information is to the procedure in setting up associations and the cfaurse to be,followed' in submitting applications " for loans through associations should be addressed. to the nearest District Intermediate Credit Supervisor. ■ 1 ADVANCES TO FARMERS. To provide for cases where farmers have not the opportunity of join’ng or forming associations of the description which I have just referred to. the Act makes special provision foi farmers to apply for loans direct to Board .without the interveint on of such associations. Of course, in the case of associations, the collective liability of the association, for all loans granted through, it (to meet which the paidi-up and uncalled share cap - tall is available) provides an addi-tional-protection to the Board, apart from. the. actual securities for advances made. -■ In the case of Loans direct to farmers without the intervention of associations, provision is made that ea ch loan granted under this particular part of the statute is also, in. addition to the ordinary bill of sale and other documents of security, to be secured l by a guarantee, from one or more persons approved by the Board, to such amount as may be required, not • being in any case less than. 20 per cent, of the amount originally grantedIt may be assumed, from statements made before the Parliamentary Committee to which the Act was referred while in. the. BlilJ) stage, that the stock and station, agents operating in New Zealand will be prepared in suitable cases to act ais guarantors in respect of loans made by the Board under this particular heading. Special provision is contained' in the statute authorising companies to guarantee loans of this description, so that any doubt as to the; legality of a New Zealand company’s action, in agreeing to guarantee such a loan, is •removed.

The Board has announced, that generally it will require guaranitees of loans under these provisions of tlie Act to be given by financially sti'ong companies such as stock and station agents, dairy companies, farmers’ cooperative organisations and the, Hike. Guarantees from private individuals will only be accepted) in special easels. The restrictions which have previously fiqen mentioned as applying to loans granted through associations, app:ly equally, with, one exception, to loans granted direct to farmers; The purposes of the advances be the same as those which 1 have already enumerated. The maximum amount is also £lOOO, and the? maximum rate of interest payablei by a, borrower 7 per cent. The loans are, however, to be granted repayable on demand, and if no demand' is made, then' within, five years from the date of granting. It is the. Board’s policy to-requ’irq loans to be reduced by instalments, in amounts and at times arranged: as far as possible to suit the borrower’s convenience ; but by making these ara'angements the Board must not in any way be understood to limit its statutory right and duty to demand repayment of the whole, loan at any time ’should it conside- it necessary. But though the Board is. not allowed by the Act to grant a. loan for a fixed term, it is its policy to give the best possible treatment to those borrowers w'hose conduct and securities are satisfactory.

For thq present the Board has fixed the rate of interest payable in re;speet of loans of this description at 6% pei; cent. Before leaving this subject, there is one matter which should be mentioned as it is important. The maximum amount which an individual may obtain on loan from the Board: is £loo'o, and he. is not permitted to obtain a larger amount by making separate applications both through an association and direct to the Board, if, however, a farmer already has obtained a loan of less than £looo' through an. association, or in any other way from the Board (e.g., through bills or promissory notes diis'eounted), he is not restricted from obtaining a f’nrthqr loan, so Long as the total of the two

advances is not ove;r £lOOO. Loans of this description will be dealt with to a large extent by the District Rural Intermediate Credit Boards set up throughout the Dominion. inquiries in regard to loans should be made in e,aeh case to the nearest District Intermediate Credit a Supervisor. (To be concluded in Friday’s issue.)