LOANS FOR FARMERS.

New Zealand Herald, Volume LXIII, Issue 19413, 23 August 1926, Page 11

LOANS FOR FARMERS.

- INTERMEDIATE CREDITS i COMMISSION'S PROPOSAL. r SMALL LIMIT ON ADVANCES, ASSOCIATIONS AS BAILIFFS.

Under the lengthy title of " Co-opera- ; tive Rural Intermediate-credit Associations," the Royal Commission on rural credits has propounded a scheme of finance for the farmers of New Zealand that has sornei distinctive features. The •idea is to provide farmers with working capital for periods of greater length than are at present allowed under the short term credits of the banks and other fin an- . cial institutions but for less periods than the terms usually provided for in farming ; mortgages. Hence the use of the word ''intermediate" in the title. Doubtless there is some need of such financial assistance for the farmers, but there is a possibility of many difficulties arising if the scheme is taken up enthusiastically by the farmers and all want loans at the same time. In the draft legislation prepared by the commission, it is provided that application to form a credit association must be made by at least 20 farmers in the community in which it is desired the association should operate. The members must provide a capital of not less than £SOO, of which 20 per cent, must be paid in cash at tho time of the application* the balance being spread over a period of six years at six per cent, interest. Limits on Advances. It. is also laid 1 down that loans must be confined to members and that for every £IOO borrowed, the borrower must have £lO invested in the society. On the face of it, it would setsm that, for every £lO invested, a member of an association may borrow £IOO, but there is another limiting clause which provides that* the total amount advanced to any individual must not exceed 15 per cent, of the total capital of the association. It comes to this, therefore, that in any association which has only the minimum number of members and the minimum capital, the borrower will be able to obtain only 15 per cent, of £SOO, or £75. To obtain this advance he must commit himself to the investment oi £25 in the association, paying six per cent, on the balance of tho unpaid capital, and, on ; top of that, pay iuterest on the loan at a rate not exceeding seven per cent. The position would be eased, as far as the amount advanced is concerned, if the number of members were double or treble the minimum laid down, but with other more profitable avenues available

for tho employment of their surplus capital it is not to b(r expected that farmers •will put their money into the associations unless they desire to make use of the borrowing facilities provided by them. Loans and Guarantees. Even if there were 60 members and all subscribed £25 toward the capital, tho most that could bo advanced to any individual would, bo £225. If all the ( 60 members desired to borrow at the same time up to the limit allowed, a total of £13,500 would lio required. The difference between tho capital of such an aw>- ! ciation, £ISOO, and tips largo sum would bo obtainmJ either by advances from the Farm Loan Hoard, thu controlling authority of tlic uasociulioijs, or by credits from morchant houses to members under tho guarantee of tho association. In the guaranteeing of loans to members the co-operative principles of the associations are to be brought int6 full play. The theory; of the. proposal is that should a mtimber desire aii advance of, say, £IOO to buy machinery, the association may advance the cash, in which case the association will take.security oyer the machinery plus a" promissory note signed by the borrower covering the principal and interest. On the other hand, any of the large trading companies may advance the amount or the goods to tho 'member through the association. In this event the farmer will give the trader security over'the machinery and the promissory note arid the" association will be required to endorse it. Should the fanner not be able to repay the advance on tho due date and the merchant not desire to .renew the loan, the latter is at perfect liberty to calf on the association to make good the debt of the defaulting member. The association is required to pay off the loan and it becomes the creditor. In more plain terms, it will become the bailiff. One foresees in the adoption of such & scheme the end of credit to what are termed colloquially "doubtful marks;" since few merchants could be expected to resist the temptation to obtain the additional secur- , ity given through the endorsements of the

associations. 4 A peculiarity about the constitution of the proposed associations is that there is a possibility that once a farmer becomes a member he is liable to remain a member for the rest of his life. The draft legislation provides for the retirement of members after they have discharged ail loans obtained by them, but no member will be allowed to retire if his ■withdrawal will reduce the number- of members below twenty. With or without his consent, he must stay in to keep the association alive. Some refcrenco is made in the proposals for the distribution of profits gained by the association and payment of expenses. It is not indicated, however, where the profits will come from. The associations will have the interest on the invested capital and the unpaid capita!, while, of the interest paid on. the loaris made by the association, one-half of one per cent, is to be paid to' the asociation. Even if £13.500 were advanced and the interest paid promptly the amount credited to the association plus the interest on capi-, tal would barely cover the salan' of the secretary-treasurer, let alone pay the travelling expenses of. the directors and provide for a reserve fund.