AGRICULTURAL BANK

Evening Post, Volume CVIII, Issue 99, 23 October 1924, Page 14

AGRICULTURAL BANK

HOW IT WILL AFFECT THE

FARMER

Tho Welfare League writes:—

In our last article -we outlined' Mr. ■Poison's scheme in general terms. It is obviously based on some of the manyuseful forms of credit, loan, and banking associations, especially designed to assist in financing farmers, -which .exist in other countries, .and, if we may say so, it shows a failure to understand and thoroughly study all the factors which govern a very difficult: question. The schemes in operation abroad/ differ in very'material points and operate with varying success, and' there are many failures. Local conditions" have to be taken into account; it is therefore dangerous- to -advocate any particular1 scheme simply because it has succeeded under conditions totally dissimilar to our own. We believe that the individual farmer will not only riot benefit by the scheme; but may become involved 'in personal joss. In saying thii we art confining our criticism' t6 Mr. Poison's proposal/not only- in relation to' the borrower-share-holder but also to the abnormal '.condi-tions,-financial and otherwise, which exist at present. One of the main pleas put forward by the promoters of the scheme is that, the farmer cannot obtain credit on reasonable terms; we doubt whether, this, proposal really helps in this direction.; - . THE BORROWER'S POSITION. Let us examine this. The mortgagor who borrows £2000 only receives ±il9oo advance^ as he has to take up 5 per cent, of his loan in shares; in addition to this he may be' called upon to. pay another £100, or 5 per cent., if one of his fellowmembers makes default; "thus/ he can only safely reckon on £1800,. free of liability, and for this he pays interest (at 5£ per cent., plus up to 1 per cent, for administration) on the whole £2000. It is true that the value of the shares is ultimately repaid to. him when, his mortgage expires, but he receives no interest on this value, though he has paid interest to the bank on that money for many years. He may, however, lose the"value of these-shares altogether if a fellow-shareholder defaults, •or if the bank is hot well, managed, ' and tho constitution of.lthe board does not inspire confidence. In the event of the bank having no cash in hand, it* may retake^ .the' loan by handing over bonds,' with face values of £2000. In this case J?f™ P/ row, 6l' rausfc first P ay the bank >100 for shares, he then has to raise cash on the bonds. ,' As these cannot carry more than 54 per cent, interest and as money is tight, he is not likely to get the face value, but he still pays the- bank interest on the, full £2000. If the bond is unsaleable, he can only go to his usual banker for an overdraft which is sure tobe at less than face value, and on which he must pay the overdraft rate, which would certainly be higher than 5£ per cent., .which the bond carTaking the cumulative effect of thesa conditions, especially the fact that he is personally liable up to 10 per cent, of his loan for his neighbour's default;, we do not see how the bank proposal puts hmrin a better position than he is now. Z,MI f l^ hiliiy f °r-default is doubtless a fine ideal, and if all farmers were equally capable and hardworking it would involve less risk; but we must took at things as they are, and we fear that in practice it would mean that the capable, hardworking farmers' will have to carry the inexperienced and incapable. i-_f.iV- ; • -.. . „ •■ DOES IT RELIEVE THE FARMER h Another plea put forth by its' advo^ cates is that many millions of cash wil] be required to renew mortgages when the moratorium expires. As a matter of fact, the lifting of the moratorium ™ 1 M'%. °, pnncipal cause of th« trouble) will release a great deal of cash now tied up and anyone with reasonable security will have, no difficulty in rearranging or renewing his loans. If the security has depreciated in value, and a farmer finds a difficulty in &iancin K his obligations, the agricultural bank scheme cannot help him, because under the rules ,!t. can only lend up to two*l i ofi, th° Pres«it value. On tho other hand, ,f tho renewal of loans is difficult because there is a scarcity of liquid,_money" in the Dominion/the scheme ; is useless, as it does not create one sixpenny-worth of " new " cash At the most it only, creates " paper " credit of a dangerous typo. This-i 9 so ob» viously true that we, cannot understand why of this scheme supl pose that it will attract cash or bond* secured by mortgages from investors who are loth to lend direct to a mortgagor. WILL INCREASE INTEREST. In on. direction it'must adversely affect the producers, and, indeed, the hole country, because the' advent'of another borrowing institution in a mnrket already short, of liquid cash will inevitably make money dearer and raise the rate of interest.' Had the promo of the proposal been able to issue their bonds abroad, and so introduce fresh SVI" "f'fionof such a bank «ould be beneficial if. soundly managed In our next article We-diall,endear 531 fr°m theDo"