AGRICULTURAL BANK.

Hawera Star, Volume XLVIII, 24 October 1924, Page 8

AGRICULTURAL BANK.

11. HOW IT WILL AFFECT THE FARMERS. (Contributed by N.Z. Welfare League;. In our last article we outlined Mi Poison's scheme m general terms. 1l is obviously eased on some of me man.. useful forms of credit, loan and banking associations, especially designee to assist in financing farmers winch exist m other countries, aim, n we may suf so, it shows a failure to understand and thoroughly study alt the factors which govern a very dinieiui question. The sememes in opeiation abroad diffoi m very material points and operate with varying success, anu there are many failures. Local conditions lunm to be taken into, account, and it is therefore dangerous to advocate anj particular scheme simply because it has succeeded under conditions totally dissimilar to our, own. \\e believe that the individual farmer will not only not benefit by the scheme, but may become involved in persona, loss, in saying this we aie confining our criticism to Mr Poison’s proposal, net only in relation to the borrowershareholder, but also to the abnormal conditions, financial and other .vise, which exist at present. One of the mam pleas put forward by the promoters ot the scheme is that the farmei cannot obtain reasonable terms—we dc.ubt wliethe,r this proposal really he.pF in this direction. THE BORROWER’S POSITION Let us examine this. The mortgagoi who borrows, £2ouO only £I9OO advance, as ne has 'to taxe up o per cent, of his loan in shares. In addition to this he may be called upon to pay another £IOO or 5 per cent, if one of his fellow-members makes default; thus he can only safely reckon on £IBOO free of liability, and for this he pays interest (at 5£ per cent. piu* up to 1 pe,r cent fo>r administration; on the whole £2OOO. It is true that ihe value of the shares is. ultimately repaid to him when his mortgage expires, but he receives no interest • n this value, though he lias paid, interest to the Bank on that money for n:any \ears. He may, however, lose the value of these shares altogether if a fellowshareholder defaults or if the bank is not well managed, and -the constitution of ’ the board does not inspire confidence. In the event of the bank having no cash in hand it may make the loan by handing over bonds with face values of £2OOO. In this case the borrower must .first pay the bank £IOO for shares; he then has to realise on the bonds. As these cannot carry more, than 5 A per cent, interest, and as money is "tight, he is not likely to getthe face value, but he still pays F-e bank interest on the full £2OOO. If the bond is Unsaleable be can only go tr, his usual banker for an overdraft, which is sure to be at less than face value, but he still pays the bank interest on the full £2OOO. If the bond is unsaleable he can only go to his usual banker for an overdraft, which is sure to be at- less than face value, and on which he must pay the overdarft rate, which would certainly be higher thai per cent., which the bond carries. Tak’ne the cumulative effect of these conditions, especially the fact that he f personally liable up to 10 per cent of his loan for his neighbour’s default we do not sec how the hank proposal outs him in a- better position than he is now. TMs mutual liability for default is doubtless a fine ideal, and if all fanners were equally capable and hardvorkins? it would involve less risk, but ’ve must look at things as they ore, and we fear t,hat in practice- it would mean that the capable, hardworking farmers will have to “carry” the inexperienced and incapable. DOES IT RELIEVE THE FARMER? Another plea put forth by its advocates is that many millions of ’ cash will be required to renew mortgages when the moratorium expires. As a matter of fact, the lifting of the moratorium (which js the'priniepal cause ot the trouble) will release a great deal of cash now tied up, and anyone with reasonable security will have no difficulty in re-arranging or lenewing ins loans. If the security lias depreciated in. value and a farmer finds a difficulty in financing his obligations, the agricultural bank scheme cannot help him, because -under the rules it can only lend up to two-thirds of the present value. On the other hand, if the 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 type. This is so obviously true that we cannot understand why the promoters of this scheme suppose that it will attract cash on bonds secured by mortgages from investors who are loth to lend direct to a mortgagor. WILL INCREASE INTEREST. In one direction it must advc-isely affect the producers, and, indeed, the whole country, because the ad,out of another borrowing institution cu a market already short of liquid cash v. ill inevitably make money dearer and raise the rate of interest. Had the promoters of the proposal been able to issue their bonds' abroad .and so introduce fresh capital thb institution of such a bank would be beneficial if roundly managed. In ou,r next.article we shall eiuleavmr to deal with th-« proposal from the Dominion’s point of view.