AGRICULTURAL BANKS.

Manawatu Herald, Volume XLVI, Issue 2800, 21 October 1924, Page 4

AGRICULTURAL BANKS.

PROPOSED SCHEME EX AY FREED

Several people have asked the • Welfare League its opinion on the agricultural banks proposal, as advocated by Mr Poison. President of (he N'.Z. Farmers’ Union, and after very careful examination we feel that the scheme is one which will not only affect the farmers, but every other section of the community. It is therefore essential that it should be thoroughly understood before the Dominion is definitely committed. CONSTITUTION OE THE BANKS. Tito bank starts with an executive seven localcd in Wellington, two of these are to he appointed by the Government and the other live nominated, presumably ,hy the producers’ official organisations. The Government- appointees hold office at its pleasure, the others retire by rotation and are elected annually, by the shareholders in each of five (5) districts constituted by the Act, one member for each district. The live districts cover rite whole Dominion. and any ten or more persons who own, or are about to own, land on which the bank may lend money, mnv form a branch for the. district. The procedure is simple, these ten or more intending borrowers meet and elect three of their number to form a branch executive, who also act as a committee of advice, and whose report on the properties, on which loans are required, is forwarded to Wellington. If the loans are granted, then each borrower becomes a shareholder, as will be explained later, and the branch is formed and thereafter annually elects its local executive, and a district representative on the Head Executive in Wellington. No salary is attached to branch executives, but members of the head executive are paid the Government paying their two appointees for the first Two years. This payment by the State is not refunded. The basis of the scheme is that only a borrower can become a shareholder, and when Iris loan is paid off lie ceases to be a member. • The banks have all the powers of a Joint Stock Bank, including note issue, deposits and overdrafts, and also carry on the general business of stock and stations agents. CAPITAL. • To start the Bank the Government is to put up £IOO,OOO in cash (this is the only cash provided for) and 20,000 £5 shares are issued to the State which carry no interest no dividend, are not iransferable and carry no vote. These shares arc retired'if, and when, the bank makes sufficient profits to build up a reserve, and then only by paying "til lie-half of the sums carried to reserves after the first £IOO.OOO. With this nucleus in hand the Bank commences to lend money on mor! - gage up In (id per.cent, ot the pronely value, and each applicant for ,i loan has to subscribe for and take uf> shares in the bank equal to five per cent, of the amount of his loan. This means that a borrower of £l,000 must tsthe up £f>o worth of shares valued at £f> a piece, amt execute a mortgage for £I,OOO in the Bank’s favour. Presumably iu practice the hank would only advance £of>o and credit the other £SO to share r-apl--1. When a certain amount of the original £IOO,OOO is lent the bank Inis power to issue to the public Land Bank Bonds up to the full amoiiiit of the mortgages in its hands, if these are taken up by the public, this money is lent out by the hank to applicants, and a further issue of bonds is made on the security of the new mortgages to obtain further cash for loans and so on up to the proposed limit . The slut res compulsorily subscribed for by borrowers nveive no dividend in cash, but if .any dividend is declared (live per ecu i . is the limit allowed) it is credited to the shareholder and is not receivable by him until lie retires,, which he does automatically when hi.- loan has been repaid. These bonds carry up to 51 per cent, interest, and are to be free of stamp duly, free of income lax and guaranteed by the Slate (we believe tit is gtunautec is limited to 25 per cent.) TERMS OF LOANS. Mortgages are repayable by instalments up to JO years sufficient to ( over a rate of interest not exceeding' the rate paid on the last issue of land bonds, plus not more than one per cent, for administration and profit. Valuation fees have it Iso to be paid and eight per cent, interest is charged on overdue instalments. The maximum for loans is £20,000, minimum £SO. A loan may be made in cash or by the issue of the borrower of a land bond, which he must negotiate himself if lie wants cash. LIABILITY OF MEMBERS. This is not only the basis of these credit schemes but is most important from the borrower's point of view, for he not only carries his own but part of bis neighbour’s. If any loss is made on a loan every other member of that branch has to contribute an amount equal to his share capital plus a further five per cent, of the amount of his own loan. Thus a borrower of £I,OOO is liable to lose another £SO if any fellow member defaults. He, however, still owes the bank the full amount of his own mortgage. The above is a general outline of the proposal and our next article will consider how it will affect the fat iner personally. (Contributed by the N.Z. Welfare League).