RURAL CREDITS.

Shannon News, 11 May 1928, Page 3

RURAL CREDITS.

SOME MISCONCEPTIONS REMOVED. GOOD PROSPECTS OF SUCCESS. “The Rural Intermediate Act of 1927 represents a very sincere effort to provide the means for farmers to obtain security of finance of the particular description dealt with by the Act, at more reasonable rates of interest than those which have prevailed in recent years. It is now open to the farmers in their turn to take full advantage of the system which has made available to them, and to play their part in ensuring the success of a scheme which, if properly supported, is likely to confer extensive benefits upon the farming community.” Thus State’d Mr J. Snell, deputysupervisor to the Rural Intermediate Credit Board, in the course of an address at the annual meeting of the Masterton branch of the Farmers’ Union.

Mr Snell said that there was considerable confusion existent over the two separate provisions under which farmers would obtain loans. He explained that the recommendations of the commission in regard to lon;g----term mortgage had been given effect to, by the Rural Advances Act of 1926, which set up a special branch of the State Advances Gffiee. The fundamental principle of the new system introduced by the Rural Intermediate Credit Act of 1927 was that funds were to be raised by means of debentures issued on the security of assets of this branch, which were kept distinct from the other assets of this branch. The two systems were independent of. each other. To set going the rural intermediate credit scheme the Government was advancing to the Rural Intermediate Credit Board £400,000 from the Consolidated Fund by way of loan, but of this not all was to be available for loan to . farmers, as one-third was required be invested in Government debentures. The sum remaining would not go very far, and so the ultimate success of the scheme depended on to what extent the board would be able to attract investment. It was most essential that the board and district associations make loans on only a very sound and conservative basis, as if the board were to allow the scheme to become philanthropic or benevolent, as it might be tempted to do in the case of a man who was in need of assistance, but who was unable to piovide security, the inevitable result would be' that the scheme would not commend itself to investors, and would suffer accordingly. Consequently the confidence of investors must be won. GOVERNMENT ASSISTANCE TO BOARD. In addition to the loan of £400,000 for twenty years, that sum would be free of interest for the first ten years, so that the interest was a gift ftom the Government in order to enable the board to create a reserve. The country, through the Legislature, was treating the board very generously indeed in order to allow the scheme to get a good start. In addition, the Government had granted £IO,OOO for administrative purposes, also £SOOO on loan without interest in order to finance the associations. The idea behind the formation of these rural intermediate credit associations was that the farming community had some of the best credit to offer to lenders, although for some reason or other there had not been that readiness to lend on fanning security as might be. If fanners could pool thencredit they wofild be able -to benefit much morfe, and that wa3 the idea in this case. The Rural Intermediate Credit Association was a limited liability company to a certain excetu. It. was not necessary for members of these associations to be borrowers. Men who did not need money had joined associations that had been formed to enable those who did need loans to borrow. „ BENEFITS TO FARMERS. A loan, continued Ml Snell, would only be granted for certain approved purposes, such as improvements or liabilities incurred by the applicant m farming operations. The scheme was largely one of self-help for farmers, who would be able to obtain cheaper finance. Members of associations were largely giving their services for the benefit of the scheme, and the Public Trust Office was giving its system to the board to keep down expenses, and to enable farmers to obtain their loans at the cheapest rate possible. The directors of associations would not receive any remuneration except travelling and out-of-pocket expenses.

PERIOD OF ADVANCES. Speaking of the periods over which money could be raised by intending borrowers, the speaker said that first of all, no one could make- use of the scheme, who was not a bona fide farmer. The maximum period over which a loan could be advanced to a member of the association was five years. The point had sometimes been raised as to what would happen at the end of that time. Well, said Mr Snell, the board could not give a binding assurance that a loan would be renewed, but if the security, such as one over chattels and stock, was satisfactory there was every possibility that it would be renewed. When the Bill was before Parliament it did not contain I any special provisions, but the com- | mittee to whieh the matter was refer- | red had come to tlis conclusion that some farmers might be debarred from ( obtaining loans by not being members of associations, so provision had been j made for direct loans. There was also a useful provision in the Act to the ' effeet that any borrower could repay his loan by debentures to the face value of the loan. This would have the tendency of keeping up the prices of bonds, and investors would be attracted to put their money into the scheme. PROSPECTS OF SUCCESS GOOD. The speaker said there was an im-

pression in some quarters that- the scheme was not a genuine one. It was not possible for him that day to deal with the political aspect of the scheme, but he wished to say that the central board, the districts’ association, and the executive were firmly convinced of its usefulness and its prospects of success. Farming security had not been in favour with investors for some time past. It might be there were some farmers who had not been sufficiently concerned with their obligations, but in other cases there had been quite different factors to put farming investments out of favour. If the farming industry was to prosper it was essential that it must have finance at a reasonable rate of interest. The essence of the scheme was this: That instead of investors having to invest with a risk of loss they were asked merely to buy bonds so that when the scheme was. in active operation they would have the security not of one man but that of the whole of the boards.

Speaking further in regard to securities, Mr Snell said' that these would constitute a floating asset to the board. Money would be loaned,on very good margins of security. Provision had been made that not one penny of the £400,000 from the Government would be paid back until the board had accumulated that amount in reserves, and that amount would remain as security to. bondholders. There was a further attraction to debenture-holders in that the Government had provided that if for any reason the operations of the board did not prove successful, and a received had to be placed in charge no money would be taken until the shareholders had been paid in full. Ihe board could not deal only with borrowers; it had to raise funds to lend to farmers, and it was hoping that in the Wairarapa district there would be a good response when the bonds were placed on the market. / in conclusion, he stated that m the rural intermediate credit scheme people had an opportunity of redirecting that stream of constant credit that was so needed if the scheme was to prosper. SOME QUESTIONS.

Asked by a member what margin was required on securities, Mr Snell said it was very difficult to lay dow'n a hard and fast rule. The matter had been under the consideration of the Central Board at several of its meetings, and it had invited the views of district boards on the matter. There were so many elements- • affecting the question, and while not: saying that such figures would be adopted, he said an allowance might be made of 70 per cent, on sheep and 50 per cent, on cattle, and 30 per cent, on implements. He could only say thaf the board would follow the methods of sound lending institutions. In answer to another question, the speaker said the board would have security over stock, and it would be necessary for dairy farmers to sell stock; if a man culled his herd and sold some cow’s, the proceeds Avould go to the board for the purpose of repayment of his loan, but if he desired to purchase further stock, then lie could apply to the district association for a further advance.

A voice: A very unwieldy business. . Mr Snell explained that the Public Trust Office was giving the scheme the benefit of its organisation, beyond which they had no part in the scheme. Such application as mentioned would be dealt with in a reasonable time. Questioned further, the speaker said he thought it would be quite reasonable for a stock firm to ask a farmer j’or his business if the firm guaranteed him.

What percentage would be charged to raise a loan? was another question asked. Mr Snell said the rate whs 6| per cent. Then there would.be a valuation fee, but the district association would endeavour to keep expenses down. A member asked if there would be interest payable on money placed to fanners’ credit.

Mr Snell said that interest on money would cease upon its payment to the board. As regards the purchase of further stock, an organisation was being set up to deal with this matter. The system would probably be one of purchasing on letter of credit. After further questions had been answered, the speaker was thanked for his address.