AGRICULTURAL CREDITS

Southland Times, Issue 19389, 1 November 1924, Page 9

AGRICULTURAL CREDITS

CO-OPERATIVE LENDING FORMATION OF ASSOCIATIONS FINANCIAL AID BY STATE. (Our Parliamentary Reporter). WELLINGTON, October 29. The agriculaural credits legislation, introduced into the House of Representatives this evening, is entitled the Farm Mortgage Associations BilL A covering memorandum states that the Bill makes provision for the formation of associations of farmers to raise money by bonds and deposits to enable loans to be made on first mortgage of freehold farming land up to 70 per cent of the capital value. THE MANAGEMENT. Advantage is taken of the existing Companies Act as far as possible for the incorporation and management. Practically the whole management is left to directors to be elected by associations, but a Government officer to be called “the official auditor” is appointed for each association, his principal function being to prevent the issue of bonds or the acceptance of deposits beyond the limit of security required by the Act and to see that a due register of shareholders is kept. FARMERS’ MEMBERSHIP. With the exception of the signatories of the memorandum of association who cannot originally be mortgagors, though they intend to become such, no person may be a shareholder who is not also a farmer and a mortgagor to the association. Every mortgagor takes one share for every £lOO lent to him. The shares are £5 each. No money is payable on the shares unless and until -the association is wound-up. No calls can be made and no dividends are payable. When a mortgage is paid off, the mortgagor’s name is removed from the list of shareholders. The liability of the shares is to provide a further security to the association’s bond holders and the depositors in the event of a winding up. FINANCIAL PROVISION. Provision for finance is as follows: the Government may advance to the association for its first year’s expenses a sum not exceeding £2,000 without interest for a term of not less than ten or more than twenty years. The Act contemplates several such associations and it is provided that the total of loans to all such associations under this heading shall not exceed £150,000. An association is required to keep one half of the Government loan in liquid securities to provide for redemption of bonds and deposits. Further finance to enable the association to extend its lending operations is provided by the power given to the association to issue bonds on not less than five years' currency at a rate of interest not exceeding 5£ per cent and to accept deposits for a period of not less than five years at a rate of interest not exceeding five per cent. The limit of the issue of bonds and acceptance of deposits is provided by the condition that the aggregate of such liabilities shall never at any time exceed the amounts loaned and secured on mortgage together with the amount of the Government loans and restraint within this limit is provided by the powers of the official auditor. By this means the extension of the funds available for loans on mortgages is limited only by the possibility of procuring purchasers of bonds and depositors and the loans may therefore be increased continuously. THE SECURITY. The bondholders and depositors have always as security not only the mortgages to the association, but also the full amount of the Government loan. As further security to bondholders and depositors it is provided that of all repayments of principal the association must invest 5 per cent upon liquid securities in special reserve and the interest on that reserve is added to its capitaL Th redemption of bonds and deposits at maturity is secured by (a) the investment in liquid securities of one half the Government loan; (b) the second special reserve fund gradually augmented by the five per cent of repayment of principal; and (c) by a special power to the association to raise money upon its securities for the sole purpose of meeting bonds and deposits at maturity. When the latter power is exercised the consent of the official auditing is necessary. IN CASE OF EMERGENCY. It is provided that the association must, out of the first principal moneys coming to its hands, or by the issue of further bonds and the acceptance of further deposits, redeem the charge created for the emergency. It is probable that this power will seldom, if ever, be exercised, because in the ordinary course the liquid securities and the issue of further bonds should enable every deposit and bond to be met at maturity. THE FIRST YEAR’S EXPENSES. For its current expenses each association will have in addition to the Government advance for the first year, the whole income of the Government loan and in addition the difference between the interest paid on its bonds and deposits and the interest charged to its mortgagors. Th details of the Bill show that the advance made by the Government to the associations are free of interest only for the first ten of the twenty year term, five per cent per annum being charged thereafter. ARRANGING MORTGAGES. In case of an application by a farmer for a loan, if the amount applied for does not exceed 70 per ceat of the capital value of the land as shown on the Government valuation roll, the loan may be made without further valuation. In all other cases a special valuation made by a valuer approved by the auditor is necessary. The sum of £5OOO is made the outside limit for advances by the association. Repayment of mortgages is to be by half yearly payments of principal and interest, extending over a period of not more than thirty years or by the repayment of specific instalments of principal at the dates of interest payment, such instalments being not less than one per cent of the principal each year after the first year. Where a loan is being made under the direction of an association, the auditor must approve of the security and the terms of the mortgage. In the formation of an association at least 20 farmers must comprise its membership.