Rural Credits

Hawke's Bay Tribune, Volume XIV, Issue 276, 1 November 1924, Page 5

Rural Credits

Mortgage Associations THE BILL DEFERRED. I EXPLANATION BY THE PREMIER. (Per Pre,, Asrociation.) Wellington, Oct. 31. The. Prime ; Minister issued the following, statement to-night on the subjectioteth© Farm Land Mortgage Associations »Bill:— “As. there seems ,to be a good deal of misapprehension on the part of people taking both sides on the Question with, regard to the Farm Land Mortgage Associations Bill, I have decided to hold the measure over for the present in;the. jpp© that it may be carefully considers in the recess. The biJi is intended to assist the finance of farmers ' who require, borrowed capital and *it i provides for the setting up of what are called farm land mortgage associations. Any 20 or more farmers intending:to borrow monev on security ortMtrih land .from the association to Be formed under the provision of the bill Aiay, by complying with the requirements of the Companies Act, 190”, in-respect, to registration, form an incorporated company with a limited liability. The objects fo the associations shall be:— (a) ’ Lending of money to farmers upon security of farm land. ' (b); Raising of moneys by the issue and sale of bondq. (©> Receipt of moneys npon oontract of deposit. METHOD OF FINANCE. The finance of the associations will be based upap an advance in each case from the Government for the first year’s expenses of- a sum not exceeding £2OOO free of interest for a term not exceeding . ten years. Interest, howeVdfr, is payable at 5 per cent after the first ten years. The Government may also lend to an association £50,000 without interest for a term of not less than ten, but not more than 20 years, the limit of lending in this way to be hot more than £150,000. Permission is given to an association to extend its lending operations by authority to issue bonds of not less than five years’ currency at 5 per cent.,. although in committee I propose to increase the maximum rate of 6 per cent. The bill also provides for deposits for not less than five years at a rate of interest not exceeding 5 per cent. Auditors will be provided by the ’ Government and, tneir salaries and expenses will be paid by the Crown. Farmers borrowing from an aspsciation will give mortgage deeds. Therefore, these latter will be, held by the association and against theta bonds may be. issued bearing a face value,of .£lO ,or some integral multiple of £lO. The working capital, therefore, of .th 6 association is intended to be providea by:

1- Contributions from the Government. 2. Money lent without interest by the Government. 3. Deposits, 4. Borrowers Become shareholders to the extent of one share for every complete* £IOO advanced and are liable io. that extent for uncalled capital npbn such shares until the whole amount of such, advance has been repaid to the'association. 5. The issue of bonds. WHAT IS DONE ELSEWHERE. v The amount that may be borrowed by any one individual ia limited by tfit bilLty £SOOO and .no lean shall fee rniun to an extent exceeding 70 per cent oi the value of lands to be mortgagee as security. We are often told of what the Governments of other countries have done to help these lending institutions and we are specially remind cd of America. The banks in America doing business, specially with agricuitvrists. bavd just passed through the moat serjous crisis in their history, during which, according to reports in reliable newspapers, hundreds closed their doors, but this does not apply to these which were assisted by the grate. The ■ aggregate assistance provided by the American Government for the lane mortgage banks in which they wefe concerned was £1,800,000. This it itself. for a country which has a population 90 times that of New Zealand, is not proportionately equal to the £150,000 proposed to be provided by the Government of this country, and be it remembered that in addition to th* larger sum there are minor contribu tions for several purposes. In the case of Danish associations t h dir Members are jointly and severally responsible td the extent of the fully assessed value of their property, provided they have obtained a loan equal to three-fifths of that value. Their guar ante© of interest is confined to special small associations, which deal with pro perties valued at not more than £550 if of less than 2£ acres and £670 if of greater extent. The American law provides for two kinds of mortgage in stitutioDfl. designated federal land banks and joint stock land batiks. The fed eral land banks or mortgage banks were establiahcd by the United States Gov ertflnent with a maximum capital of £150,000, most of which came from the I'ederal Treasury. The cutside or pri vote agricultural banks were those which sutfefed most in the recent crisis and judging from newspaper reports Very few of those which were in business in the north-western States a few years ago are still in existence. IxCanada no special provision is maide by the Dominion Government. Chartered banka do most of the business in the ordinary way. The province of Ontario has a farm loan board and their advances on long term loans are less than £1,000.000 out of an estimated total of £88,000,000 on farm mortgages in that province. This State also provides a short term credit system, advances being limited to £4OO, interest being at the rate of per cent. THE DANISH SYSTEM. Referring again to the Danish system, it may be pointed out that the whole of the system consists of credit associations, which are co-operative associations of land owners, formed for the purpose of borrowing money on security of their real property. I*, should be noted that these credit asso ciutions vo private institutions and that except in the case of special as sedations for small holders (maximum value of property £670) no assistance is given by the State, either by way of loan or guarantee. These small associa ationip receive £550 for establishment expenses and interest guaranteed aT 4$ per cent par. The articles of the Danish dssodifitions must be approved by the Minister of the Interior and cannot be altered without his consent. The minimum requirement to' form an association is borrowers requiring loans to aggregate £55,500. The maximum loan to one person is three-fifths of the valuation of the security. The issue of bonds cannot exceed the total v of the . members ’ mortgages deposited. Members jointly and severally arc responsible for bonds issued by their association. The minimum denomination of the bonds is £5. A member obtains a loan in the form of bonds and must himself accept the risk of their selling bilbw par. Without a special license associations cannot charge their members more than 4 per cent interest. Limns are repayable by amortisation over a period of 60 years. Sir Rider Haggard, in his book entitled, * Rural Pnuuark -nd U» Ituom,’ relni to

their credit system and says that ‘the largest loan advanced by the credit sys - tem of the Danish Isles amount to £94.400. but the sums lent are sometimes aS small as £33.’ There is some doubt as to the accuracy' of thjs statement, because there occurs the following paragraph, which is contained in thu same hook: ‘The following table pub lished in 1907 will show how Danish "properties were divided as to number and size. It will be observed that at that time and since 1907 the proportion has varied little if at all. There were only 2392 properties that comprised more than 270 acres of land, of which the total acreage amounted to 1,539,* 273. As against this there were 247,091 properties varying from 7| acre's to 270 acres and comprising acres of land. 1 may add that in 1900, out of Denmark’s population of 2,600.000, over 54 per cent belonged to the agricultural classes.' The table that accompanied this paragraph indicated that the average holding in Denmark is 32.7 acres. The author places the value of good agricultural land in Denmark at that date at £33 per acre. The average holding is thus valued at about £luBo. The average cncum brance in the country has been estimated at 49 per cent of the total value of the land. On this basis the average loan would work out at about £530. ' STATE ADVANCES OFFICE. In Western Australia an agricultural bank makes advances up to £2obu and interest must not exceed 7 per «cn.t. In Tasmania the agricultural bunk makes advances up to £lOOO. In New Zealand some very extravagant demands have been made bn the Government by persons asking for a bank with a hominal capital of £20,000,000, of which £5,000,000 is to be guaranteed by the State and the maximum amount of a loan to be.£22,000. Such demands are not only unreasonable, but if agreed to would most certainly end in disaster. The plain fact is that tn New Zealand we have to-day, in its present form, one of the best lending institutions in the world—namely, the State Advances Department, which is aovancing money at the present time to farmers and workers and local bodies. the rate of interOst being from 4| per cent to 5$ per cent. There are several State agricultural nanks in the Australian Commonwealth. New South Wales has what is called a rural bank, though it is really part of the State Government Savings Bank ; advances being made to settlers under j the Government Savings Bank Act, Advances may be made oni freehold lends of not less than £5O nor more than £2OOO to any one person, and on Crown leaseholds advances are limit* ad to £5OO and a loan may not exceed the value of improvements, In( Victoria the credit department of the 'State Savings Bank makes advances on first mortgage, only the advances must not be less than £650 or more than £2OOO. In Queensland the State Advances Corporation makes advances up to £l2OO. In South Australia the State bank makes advances up to £5OOO, provided that the amount does not exceed threefifths of the unimproved vajue. Loans authorised by the New Zealand State Advances Department number 11,564 and amount to £10,332,752; paid over, 9472, £8,608,426. This department is now established on a very solid basis with a capital little short of £25,000,000 and is growing steadily. My own opinion is that no other organisation can . compete successfully with it, and if necessary I would prefer to increase th? eapittft still further from time to time, but if the farmers want a lending institution on lines similar to those exist-, ing in other countries, then so far as I am personally conc(|ned they are welcome to it, but the last word rests with with Parliament, ,