SOUTHLAND BUILDING, LAND, AND INVESTMENT SOCIETY.

Southland Times, Issue 1588, 7 June 1872, Page 3

SOUTHLAND BUILDING, LAND, AND INVESTMENT SOCIETY.

Sib, — Your correspondent " Actuary" says 1 there ia a diversity of opinion about the profits 5 and interest of the Southland Land Association. 5 This subject will not admit of an opinion at all. " Tt is &fact that the borrower either pays more and consequently the investor receives more than the 3 8 per cent, or, that he only pays that sum. There can be no difference of opinion — he does, [ or he does not. Now, to show how it is that the borrower pays more than 8 per cent. As calculations only tend to confuse both the writer 3 and the reader/I will therefore avoid them. ) A shareholder in this Society borrows £100 on the Ist June. He holds four shares to represent this money, for which he pays 4s ppr fortnight. | Let us Buppose that the interest at 8 per cent. ' will be 4s per fortnight. And this is the point that must always be borne in mind, that the > interest is paid fortnightly and not annually. By . paying this interest fortnightly, the borrower loses exactly the value that this interest would have been had he kept it till the end of the year. 1 Because the borrowing of money at 8 per cent. per annum, interest paid fortnightly, is a different - thing to borrowing money at 8 per cent., interest j paid yearly. It is manifest then that by paying the interest in this way, a borrower in this Society is paying more than 8 per cent, per annum. All ' this, as your correspondent "O " says, may seem } formidable to the intending borrower. It should ) not be ; and I will endeavor to show why, by r illustrating the ordinary method of borrowing. ' Let us suppose a borrower went to a money-lender for £100 for 5 years, interest to be 8 per cent, per 5 annum, and payable fortnightly. The difference ■ between the Society and the money-lender would be thiß. The money-lender would take the in- ) terest and keep it solely for his own benefit, p whilst the Society would take -the interest and re-invest it — not solely for its own benefit — but s for the benefit of the borrower as well as the > lender. It will be seen that of what the borrower » pays in excess of the 8 per cent., he receives a portion back, because he is an investor as well as a borrower. He, however, receives only a portion back, the other portion going to those who are solely investors, consequently he still pays more ' than 8 per cent., and taking the assumption that ; fines, &c, will pay working expenses, the mii vestor mußt receive more than that sum. The firstly, secondly, and so on of your cor- [ respondent " O," I will pass over, because they ' do not affect the principles of this Society. He '> will also see that I agree with him that there is ! more than 8 per cent. paid. But I must stop r here, because, further on in his letter, he has fallen into a greater error than " Actuary." " O," in Btating the repayments by borrowers over different years, says of the borrower — " At the commencement of his last year, he will only owe the Society £10" (He is writing of a borrower of £100) " but still he has to pay for that year tbe inevitable, £8.- ,«->Wil| ' Actuarjr'ractually -tell 1 '-us this is only.B«per cent. J interest forHhafeyear?" I will not say that it is not more than 8 per cent, for that year, for the reason that I have already shown that the borrower pays more than 8 per cenfe, but ,.-! will say,^rhafeinNeffect-ivonld be;the same ,as : " Actuary' <J saying ; that the borrower only pay's "B per centrf he' last year,— l Will ; say more, I will say that the idea of anyone believing that borrowers pay the enormous interest that your correspondent " O " thinks they do, is bo supremely ridiculous that' l cannot .ttiinkjhejs in earnest. • He must be trying the credulitySjf your readers. Why, Sir, if the interest was paid in the manner he seems to think, it would be frightful. I will say -further— the borrower pays no more interest the last payment of his last year than he did the first payment of the first year. I will try to Bhow in as plain a manner as' possible" how it is that the interest is "uniform throughout the whole period of repayment. Let us suppose a shareholder who has four shares of £25 each, the subscription per fortnight to be 4b. Let us further suppose that at the end of 8 years the subscription, with profits, will bring the amount ' of each share" Ho £25; The sum then to.jie credit of? these shares be £100. Let us take another shareholder entering the Society at the same time, having the same number of shares, and the same subscription to pay, viz., 4s per fortnight. Let us suppose this shareholder to have borrowed. He simply has to pay the interest extra. The fact of his borrowing does not alter his position aa, an investor ;he receives the same profits as though he had not borrowed. His subscription is not taken as the liquidation of a debt, but as money to be invested, and the interest he pays is 1 eimply the interest on money he has borrowed, and has .no connection at all with what be pays as subscription, until the termination of the Society — or what is the, BamS — the.amouht of the shares id paid up j and then the difference between the one who has borrowed and the one who has not, ia this : the one had his money six monthß or six years ago, as the case may be, and the^>ther has to receive it now. Let us suppose that a man having £100 worth ef shares in this Society, and instead of borrowing from the Society, he borrowed £100 for six years from a Bank, for which he paid 8 per cent, interest, paid fortnightly ; say the Society's shares would be worth £100 at the end of six years, the man would take the money from the Society and pay the Bank. Would your correspondent say that this man was paying the interest he seem 9 to think he would have to pay had he borrowed from the Society ? "I pause for a reply." The benefit that this Society has been to the district ia incalculable, and it is to be hoped that it will continue in a prosperous state. No misconception of its principles should exist. It is good for the investor and the borrower, and it is good for the community. The great cause of its being so profitable to all concerned is that it never has any idle capital — it is always on the move. — Youtb, &c, L. S. D.

P. S. — When I separate the borrower from the investor, I do so only to illustrate tbe argument, as no one can be a borrower in this Society unless he iB an investor. (