RURAL CREDITS

Southland Times, Issue 20496, 26 May 1928, Page 11

RURAL CREDITS

Scheme Outlined INSTRUCTIVE ADDRESS TO FARMERS. PROVISIONS OF ACT FULLY EXPLAINED Yesterday afternon in the Y.M.C.A. lecture hall Mr Joseph Snell, Deputy Public Trustee, addressed a big gathering of farmers and business men representative of all parts of the province on Intermediate Rural Credits. In the course of a most instructive address he explained fully the provisions ot the Act and answered a number of questions at the conclusion of his speech. The president of the Southland branch of the Farmers’ Union (Mr D. Dickie, Gore) briefly introduced Mr Snell. Mr Dickie referred to Mr Snell’s important part in the drafting of the regulations under the Rural Credits Act. Although Parliament passed the Bill it was left to Mr Snell and his committee to frame the regulations. No one was better qualified than Mr Snell to deal with the provisions of the Act, which was of great importance to the farming community. It was most fortunate that the farmers of Southland should have the opportunity of hearing him. There was no question that the time would be well spent. Mr Snell expressed his pleasure at being privileged to address so large a gathering At the Dominion Conference of the Farmers’ Union the need for the rural credits scheme being explained to farmers throughout New Zealand was stressed. The Commissioner realized that the best practical way to enlighten farmers was to address the provincial conferences which were about to be held. The speaker said that he had already addressed gatherings at Ashburton and Oamaru and after Invercargill was going to Hastings. The Commissioner was also meeting farmers at their conferences. The attitude of the Farmers’ Union was greatly appreciated by the Commissioner. Mr Snell said that the starting point of the scheme could really be traced to the difficulties which for some time had been beset the farming industry. Not only in New Zealand, but throughout the world farmers had been up against it. In America, always regarded as the world’s most prosperous country, legislation had recently been passed to deal with the very severe depression in the farming community. Great Britain also had experienced severe depression in the farming industry’. The best brains had tried to discover the best methods to vercome the difficulties of the farmers. The first mode of improvement was the application of more scientific methods of farming. In New Zealand scientific research had been given great attention by the Government. Herd testing and the use of fertilizers were other ways of applying scientific methods to farming. The second mode of improvement was the more orderly marketing of farm produce In the past there had been much haphazard marketing, but the evolution of better marketing would spread supplies over periods and bring better results. Interlocked with both of these modes of improving the position was the question of rural finance, because top-dressing, herd improvement and better marketing were not possible without the finance being available. Out of the requirement of money for improving the farmers’ position in these ways arose the scheme of rural intermediate credits. THE ROYAL COMMISSION. ‘Tn practical expression of its desire to explore all modern systems of rural finance, so that equal opportunities might be provided to the farming community of the Dominion with those enjoyed by primary producers abroad,” proceeded Mr SnM “thfe Government in 1925 set up a Royal Commission on rural credits, composed of the late Mr P. H. Cox, a retired banker of the highest standing. Colonel J. J. Esson, Ex-Secretary to the Treasury, whose valuable services after his retirement from that position have been retained by the Government in the capacity of financial adviser to the Treasury and who is now’ the chairman of Rural Intermediate Credit Board, and Mr W. J. Polson of Wanganui, the president of the New Zealand Farmers’ Union. This commission made extensive investigations of the system of rural finance in the American and European Continents, and the results of their investigations and their consequent recommendations are set out fully in their exhaustive and informative report of 1926. In reading this report one is immediately impressed with the fact that in other countries, of which the United States of America is perhaps the outstanding example, the individual lender of moneys upon rural securities is yielding place to the finance corporation, which secures funds for loan purposes by the issue of bonds secured upon the aggregate ot mortgage investments. As will be demonstrated later, this principle is followed in the present Rural Intermediate Credit scheme. CLASSES OF RURAL CREDIT. “By way of introduction to the next succeeding remarks, it is necessary to explain that rural credit is divided into three classes, firstly, long term mortgage credit; secondly, intermediate credit, and thirdly, short term credit. Long term credit means farm mortgage credit for terms of five years or over for the purchase or improvement of land or its necessary equipment. Credit of this nature is secured by a mortgage over land. Intermediate credit is credit for a longer period than is contemplated in commercial banking transactions and of shorter duration than the usual mortgage term. It therefore means credit of from six months to five years. The’ security for credit of this nature is generally live stock or nonperishable farm products. Short term credit is the ordinary banking credit of not more than six months. The commission reported that during the investigations abroad it did not discover anything better in the way of short term credit, that is, credit up to a maximum period of six months, than the banking system already in force in the Dominion, and therefore it had ro recommendations to make in this connection. LONG TERM MORTGAGE CREDIT. “Its recommendations in regard to long term mortgage credit were given practical effect by the Rural Advances Act of 1926, which set up a special branch of the State Advances Office. The fundamental- principle of the new system is that funds are to he raised by means of debentures issued on the security of the assets of this branch, which are kept distinct from the other assets of the department. Securities issued do not form part of the public debt of the Dominion, and are not secured upon the public revenue. This is in accord w r ith the developments abroad referred to previously relating to corporate financing; and also recognizes the principle advocated by 1 * the

commission, that rural finance schemes should be so constituted that they do not result in any increase in the public indebtedness of the Dominion. The maximum amount which an individual borrower may obtain under this new system is £5,500, taking into consideration any other loans obtained by him from the State Advances Office, except any loan upon chattels security. The Rural Advances Act restricts the amount of the loan to two-thirds of the value of the borrower’s land, According to statistics issued by the Department, the rural advances branch of the Department had up to June 30, 1927, when the branch had been in operation for three months, authorized 112 Joans of a total amount of £270,835. of which 22 advances totalling £47,260 had actually been paid over. This branch is at pree?nt offering debentures to the public for subscription.

INTERMEDIATE CREDIT ACT, 1927. “The other recommendations of the com-mia-ion, relating to intermediate credit, have been carried into effect by the Rural Intermediate Credit Act of 1927. This important measure represents an effort to provide the means for farmers to obtain security of finance of the particular de-

scription dealt with by the Act, at more reasonable rates of interest than those which have prevailed in that connection in recent years. The means have now been provided by the Act, and the farmers in their turn may take full advantage of the system which has been made available for them and play their part in ensuring the success of a scheme which, if properly supported, is likely to confer extensive benefits upon the farming community. The scheme is a practical one, based as it is upon the examination and experience of ‘ similar systems which have been%successfully conducted in other countries for many years past, and with unity of effort upon the part of those mainly concerned, ‘ the farming classes of the Dominion, there is no reason why it should not be an equal success in this country. The main features to be remarked are the financing by means of debentures secured upon the aggregate of the assets, of the scheme, involving no State liability for the debentures, and secondly, the scope which the legislation gives for collective and individual action upon the part of the farmers. The Act will now be considered from the point of view of, firstly, the administration of the scheme; then the provision of funds to enable it to be carried into effect, and thirdly, the manner in which the funds are made available for the farming community. ADMINISTRATION OF THE SCHEME. “The Dominion scheme is controlled by a board consisting of not more than seven members, of whom the Public Trustee by virtue of his office is one, and the other six, which the Act provides shall include at least one person with practical experience in farming, are appointed by the GovernorGeneral’s warrant. The Public Trustee is the principal executive member of the board, and as such is styled the Commissioner of Rural Intermediate Credit. The personnel of the board is as follows: Mr John Brown, of Low’cliffe, Canterbury, farmer; Mr Thomas Eustace Corkill of Wellington, retired banker, formerly Assistant General Manager of the Bank of New Zealand; Colonel James Jacob Esson C.M.G., of Wellington, Financial Adviser to the New Zealand Government, formerly Secretary to the Treasury and one of the members of the Royal Commission of 1925 on Rural Credits; Mr Norton Francis C.M.G., of Christchurch, company director; Mr John Norman Massey of Puni, in the provincial district ot Auckland, farmer; Mr William Waddel of Wellington, Superintendent State Advances Office. In addition ,Mr J. W. Macdonald, the Public Trustee, is as stated a member ex officio of the board. Colonel Esson is the chairman of the board. It will be seen that although the Act requires the appointment of only one practical farmer two have been appointed to the board, one from each of the two islands.

“Under the Act the board is to define districts for the purposes of the administration of the scheme, to appoint in respect of each such district a district board which is to carry out such functions as the board may prescribe from time to time, and the board is also to appoint a representative in each such district under the designation of “District Intermediate Credit Supervisor.” The board has decided to set up boards in sixteen districts of the Dominion. The statute gives the board power to utilize, with the consent of the appropriate-author-ity, the services of any State Department for the purpose generally of carrying out its duties under the Act. The board will operate chiefly through the Public Trust Office, the existing organization of which is extensive and efficient but the duties associated with the administration of the scheme will not form part of the ordinary business of the office and will be kept quite distinct from it. By this means the board will receive a great initial benefit as the difficultise and expense associated with the establishment of a new organization throughout the Dominion are avoided. THE FUNDS OF THE BOARD. “The funds of the board are to be provided from two sources:— (a) The Consolidated Fund, ,by way ot authorized advances'or grants; (b) The investing public, by way of debenture issue. ADVANCES AND GRANTS. “To set the scheme going power is given to the Minister of Finance to advance to the board, from the Consolidated Fund by way of loan, sums up to a total of £400,000. Advances of this description are to be for a term not less than twenty years as may be arranged by the board and the Minister of Finance. For the first ten years, the advance is to be interest free, and after the expiration of that period the board is to paj’ interest to the Consolidated Fund at a rate prescribed by the Minister of Finance. Not all of the amounts advanced to the board from the Consolidated Fund are.to be made available for invest most in the board’s business. For the of de-benture-holders, one-third of all such advances is to be credited to a special redemption fund, which is to be invested in Government securities only; and with the resulting income such fund is to be applied only for the purpose of redeeming debentures issued by the board. As will be mentioned later, one-half of the nett profits of the board is to be credited to this redemption fund. The remaining two-thirds of advances from the Consolidated Fund is to be employed by the board in carrying on its business. In addition to advances of this nature upon loan, the Minister of Finance is also empowered to make an outright grant to the board of a sum not exceeding £lO,OOO to cover expenditure for general administration purposes. Here again is generous provision for giving the board a good start in its operations. DEBENTURE ISSUES. “Attention was drawn earlier in the course of these notes to the fact that the increasing modern tendency in rural finance was the disappearance of the individual mortgagee, and his replacement by corporate lending concerns, which secure the funds by the issue of bonds secured upon an aggregate of mortgages. This tendency is reproduced in the Rural Intermediate Credit scheme w’here funds will be provided by the issue of debentures secured upon the whole of the assets of the board. The legislation gives the board power, with the consent of the Minister of Finance, to issue debentures restricted as to total amount in that they may not exceed the sum total of the advances from the Consolidated Fund and the amount of the investments of the board from time to time. There is a further restriction, in that the total debentures issued are not at any time to exceed the sum of £5,000,000. The debentures will be for terms of from six months to five years and will carry rates of interest not exceeding 6 per cent, per annum. “The debentures so issued will constitute a floating charge on the board’s assets, and they are in effect given priority over the claim of the Crown in respect of the advances to the board from the Consolidated Fund. The practical effect of these provisions is to give debenture-holders a first charge over all the assets of the board, including investments in the redemption fund previously mentioned and the mortgages, bills of sale and other investments in the ordinary business account of the board. It may be stated generally that debentureholders will have a margin over assets equal to the amount of the original advance to the board from the Consolidated Fund; and as the maximum amount of debentures will not exceed in any case the sum of safe margin of security has been provided for debenture-holders.

“There is a further factor to be taken into consideration. During the first ten years the full advance to the board, including both the portion credited to the Redemption Fund and the portion employed in the business of the board, is free of interest ; and it may be anticipated that the operations of the board will result in the accumulation of considerable profits over this period. The Act provides that profits of this description are to be credited equally to the Redemption Fund previously mentioned, and to a separate reserve fund, which latter fund may in the discretion of the board be either invested in Government securities or in the board’s business. Thus all profits remain with the board and go to increase the margin of security for de-benture-holders.

‘There is one further point which will no doubt occur to investors. The advance from the Consolidated Fund is by way

of loan only, and consequently the question of repayment will arise in the course of time; is there, therefore, any possibility of the margin of security being diminished or disappearing as the result of partial or complete repayments to the Consolidated hund? The answer to this inquiry lies in the fact that the Act contains a special provision governing repayments; and the practical effect of this provision is that repayments must not exceed in amount the total of all accumulated profits of the board and all accumulated interest in the Redemption Fund (which, as previously stated, consists of one-third of all advances to the board from the Consolidated Fund). This, therefore, operates to preserve the original margin of debentureholders, which was previously described as being of an amount equal to the total advances from the Consolidated Fund.

“Before leaving the subject of the debentures, the notice of investors is to be directed to the fact that the board is required to accept at any time debentures issued by it, in settlement of amounts owing to it, to the extent of the nominal value of the debentures tendered. This provision is likely to stabilize the market value of the debentures; for if they should fall below par in value, it may be expected that there will be a demand for them from persons indebted to the board, who would thus have a means of reducing their indebtedness to a certain extent, without equivalent financial outlay upon their part.

“The Act makes the debentures authorized investments for the investment of trust funds, public moneys, funds belonging to various Government Departments, such as for example, the Public Trust Office, the State Fire Office and the Government Life Insurance Department, also for certain Savings Bank moneys. These provisions all increase the sources from which funds may be expected to flow to the board. For the benefit of lenders who prefer that class of security, provision is made in the Act for the conversion of bonds into inscribed stock. With regard to the protection of the interests of debenture-holders, in the event of the operations of the board not being financially successful, Section 32 of the Act provides that any debenture-holder may petition the Supreme Court for appointment on behalf of the general body of debenture-holders in the following contingencies :

(a) If the board makes default in payment of any principal or interest secured by the debenture.

(b) If the audited accounts for any year disclose a loss on the board’s operations exceeding twenty-five per cent, of the total amount raised by the board by the issue of debentures.

“These provisions, taken in conjunction with the right of the debenture-holders to be paid in full before the amount borrowed from the Consolidated Fund can be repaid, afford ample security to debenture-holders. It behoves farmers with funds to invest to play their part in helping the scheme, by investing in the board’s debentures. By so doing they will be providing funds to assist in the welfare of other farmers, and at the same time they will have security of investment at profitable rates of interest to themselves. There is just one other point which it is desirable to mention at this stage. The board will depend to the greatest extent for its funds for investment upon the public confidences in the soundness of the debentures. This confidence will not be created unless the board adopts a sound, business-like basis for granting loans to farmers, and therefore the scheme should not be looked upon as a scheme for the assistance of farmers who have no proper security to offer, but a scheme for providing security of finance at favourable rates of interest to farmers who have reasonable propositions to offer. Having thus examined the means by which funds are provided for the development of the scheme, attention will now be devoted to considering the methods by which those funds are made available for the members of the farming profession. CO-OPERATIVE ASSOCIATIONS. “The first of these methods is one which is important and interesting, in that it will provide ecope for collective or co-operative action on the part of the farmers. There has for some years past been a demand for the provision of machinery to enable farmers to combine for the purpose of financing themselves as individuals on their collective financial strength as a group. The Act meets this demand; for it provides the means for farmers to unite in forming a special class of limited liability companies. Co-operative Rural Intermediate Credit Associations they are called, to obtain advances from the board, to be lent to the shareholders upon approved securities. Twenty farmers are required to form an association, and the minimum share capital which each shareholder must subscribe for is 25 £1 shares, Of course, as in other limited liability companies, the full amount of the share capital may not be found to be required immediately, and therefore, in many associations probably only a portion of the share capital may be called up at the outset. A shareholder who obtains a loan from the board is required to take up shares to the nominal value of one-tenth of the amount of the loan which he obtains; provided, of course, that in any case the minimum share contribution is 25 £1 shares, and a person obtaining a loan of under £250 would therefore have to take up 25 shares. The share capital taken up represents the full extent of a member’s liability in respect of amounts owing by other members of the association. There is no joint and several liability. “It is convenient to mention here that once a member of an association has repaid a loan obtained from the association, he is entitled to surrender his shares, and receive their value, provided that his retirement would not reduce the number of members below twenty. To obtain an advance from the board, an association must put before 'it a definite proposal. In other words, it does not obtain a general advance from the board, and then proceed to consider applications from its members, but on the other hand it first considers an application by a member and if it approves the application, submits it to the board for consideration, and after approval for an advance by the board to the association of a sum sufficient to enable the latter to grant the advance. Thus, the board has the opportunity of approving each individual loan by an association before it is granted and this in itself should assist in creating public confidence in the security for the board’s debentures. The associations are the immediate debtors of the board in respect of funds invested by it in this manner, and for this reason there are certain statutory restrictions affecting associations, and the board is also given some measure of control over them. For example, the consent of the board will fcave to be obtained to the formation of an association, and once formed the application of profits made by an association will be under the control of the board, to the extent that the board may require sufficient reserves built up before dividends are paid. Again the local representatives of the board, the District Intermediate Credit Supervisors, are automatically directors of all associations formed within their respective districts, and the board is also given power to appoint any other member of an association to be a director as its representative, a provision designed to meet cases where it is impracticable for the district intermediate credit supervisor to attend all meetings of any given association. These provisions, and other provisions to which it is not necessary to refer here, will all operate to the benefit of shareholders in associations, who will, of course, have a stake in the association to the extent of their paid and unpaid share capital; and they will thus be provided with an assurance that their interests will be subject to special safeguards. In addition to obtaining funds from the board itself, associations may, with the consent of the board, arrange for temporary accommodation from banks or financial institutions. The obtaining of funds either from the board or from banks or financial institutions and the re-lending of those moneys to shareholders upon approved securities, constitute the exclusive functions of associations so formed, and they will have no power to act in any other manner.

SPECIAL CONCESSIONS TO ASSOCIATIONS. “The Act confers a number of special privileges and concessions upon associations. By Section "18 the Minister of Finance is empowered to make advances up to £5OOO to the board and the board in turn is authorized to lend this amount to associations in sums not exceeding £25 in the case of each association towards payment of the preliminary expenses of establishing them. Amounts so advanced to associations are to be by way of loan free of interest for such period not exceeding ten years as the board may prescribe. No fees are payable to the registrar of companies on registration of an association, and the certificate of incorporation and certain other documents are exempted from stamp duty. Furthermore, no annual license fees are payable. This represents a saving of some £l5 on incorporation, and* an annual saving thereafter of at least £2 10/(Sections 42 (4) and 59). CONDITIONS AS TO LOANS.

The conditions upon which loans may be granted, with the approval of the board, to shareholders are closely restricted as regards the purpose of the loan, the maximum amount which may be granted in an individual case, the maximum rate of interest, and the periods for which the loans may be granted. Loans may only be granted for certain approved purposes which are set out in the Act as follows: — (a) The clearing, fencing, draining and general improvement of land in the occupation of the applicant. (b) The erection of buildings on any such land. (c) The purchase of implements, stock, seeds, plants, trees and other things required in respect of the occupation and use of any land. (d) The payment of any mortgage, debt, or other liability of the applicant incurred in relation to farming operations. (e) Any other purpose in relation to farming operations that may be approved by the board.

“Furthermore, no loan is to be granted for a period exceeding five years, for a greater sum in any individual case than £lOOO, or at a rate of interest exceeding 7 per cent, per annum. For the present the board has fixed the - rate of interest payable by associations at 6 per cent., a reduction of 4 per cent, from the rate of interest payable by farmers and co-operative societies borrowing direct from the board. Associations, however, will not be permitted to re-lend the , advances from the board at a rate less than 64 per cent, and in respect of the margin of 4 per cent, will be required to apply 1 towards the expenses of management and teh other 1 per cent, to establishing a reserve fund. In effect the general lending rate of the board is 64 per cent., but a concession of 4 per cent, is made to associations in order to enable them to re-lend moneys to their shareholders at the same rate as farmers borrowing direct to the board are required to pay, and to enable the associations to meet the costs of management and set up reserves against contingencies. It is sometimes suggested that the income made available in this manner will not be sufficient to pay the expenses of management, but on the other hand those expenses should not be very heavy. The secretarial and other work involved in connection with an association ought not, for example, to be so great as to require the appointment of a full-time officer. If, as is likely to happen very frequently, the association is formed among the suppliers of a dairy company, it will, no doubt, be possible to arrange for the duties referred to to be carried out by the dairy company organisation on terms mutually satisfactory to the association and the dairy company. In other cases there is no reason why it should not be possible to arrange for some member of the association, an accountant or a company secretary, to carry out the duties, at a remuneration within the available income of the association. Applications for information as to the procedure in setting up associations and the course to be followed in submitting applications for loans through associations, should be addressed to the nearest district intermediate credit supervisor. The association method of securing loans from the board is commending itself to the farming community and already associations have been formed in the South Taranaki district, at Hamilton, Te Awamutu, Marton, Feilding and Mauriceville (Wairarapa) and matters are well advanced in connection with the formation of associations at Waiuku and in the North Taranaki district. An encouraging feature in connection with the associations formed is the fact that many prominent farmers of the district, who are not likely to require loans themselves, have nevertheless joined the associations in order to ensure their formation and to see that they receive a good start. By doing so they are playing their part in fostering the co-operg,tive spirit among the farming community along the lines provided for in this system. DIRECT ADVANCES. “To provide for cases where farmers have not the opportunity of joining or forming associations of the description which I have just referred to, the Act makes special provision for farmers to apply for loans direct to the board without the intervention of such associations. Of course, in the case of associations, the collective liability of the associations for all loans granted through it (to meet which the paid up and uncalled share capital is available) provides an additional protection to the board, apart from the actual securities for advances made. In the case of loans direct to farmers without the intervention of associations, provision is made that each loan granted under this particular part of the statute is also, in addition to the ordinary bill ot sale and other documents of security, to be secured by a guarantee, from one or more persons approved by the board, to such amount as may be required, not being in any case less than 20 per cent, of the amount originally granted. It may be assumed, from statements made before the Parliamentary Committee to which the Act was referred while in the Bill stage, that the stock and station agents operating in New Zealand will be prepared in suitable cases to act as guarantors in respect of loans made by the board under this particular heading. Special provision is contained in the statute authorizing companies to guarantee loans of this description, so that any doubt as to the legality of a New Zealand company’s action in agreeing to guarantee such a loan is removed. “As a general rule the board will require guarantees of loans of this description to be given by financially strong companies, such as stock and station agents, dairy companies and the like, but it will also agree to consider the acceptance of guarantees from private individuals whose financial position is established to its satisfaction. It is interesting to record that the board has already concluded arrangements with one of the largest co-operative dairy companies in the Dominion, under which the guarantee of the company will be accepted in respect of loans by the board to the company’s suppliers. In this manner, the company is securing for its suppliers the benefits made available by the Rural Intermediate Credit system of finance. A similar proposal has been made to the board by a large proprietary dairy company, which, it is interesting to note, has also arranged for the formation of a rural intermediate credit association among its suppliers. The restrictions which have previously been mentioned as applying to loans granted through associations apply, equally, with one exception, to loans granted direct to farmers. The purposes of the advance must be the same as those which have already been enumerated. The maximum amount is also £lOOO and the maximum rate of interest payable by a borrower 7 per cent. The loans are, however, to be granted repayable on demand, and if no demand is made, then within five years from the date of granting. It is the board’s policy to require loans to be reduced by instalments, in amounts and at times arranged as far as possible to suit the borrower’s convenience, but by making these arrangements the board must not, in any way, be understood to limit its statutory right and duty to demand repay-

ment of the whole loan at any time should it consider it necessary. But though the board is not allowed by the Act to grant a loan for a fixed term, it is its policy to give the best possible treatment to those borrowers whose conduct and securities are satisfactory.

“For the present the board has fixed the rate of interest payable in respect of loans of this description at 64 per cent. Before leaving this subject, there is one matter which should be mentioned as it is important. The maximum amount which an individual may obtain on loan from the board is £lOOO. He is not permitted to obtain a larger amount by making separate applications both through an association and direct to the board. If, however, a farmer already has obtained a loan of less than £lOOO through an association, or in any other way from the board (e.g. through bills or promissory notes discounted), he is not restricted from obtaining a further loan, so long as the total of the two advances is not over £lOOO. Loans of this description will be dealt with to a large extent by the District Rural Intermediate Credit Boards set up throughout the Dominion. Inquiries in regard to loans should be made in each case to the nearest District Intermediate Credit Supervisor.

LOANS TO CO-OPERATIVE SOCIETIES. “The third avenue of investment for the board’s funds is by way of advances to cooperative societies, meaning by that term bona fide co-operative limited liability companies, the principal object of which is the production or sale of staple, agricultural or pastoral products, including live stock, and including also goods manufactured from any such products. To be competent to receive a loan from the board, a co-operative society of this description must have subscribed capital of not less than £2500 and be composed of not fewer than thirty members. To a co-operative society fulfilling these requirements the board may grant advances on the security of any live stock or produce, belonging to the society, of an amount not exceeding 80 per cent, of the fair market value of such live stock or produce. Loans so granted are to be for terms of from six months to three years, at a rate of interest not exceeding in any case 7 per cent, per annum. The rate of interest on loans of this class has been tentatively fixed at the same rate as loans direct to farmers, viz., 6j per cent, per annum. The Act does not indicate or restrict the purposes for which the board may grant loans of this description, but it has decided that it will grant loans for purposes connected with legitimate trading, such as to enable the orderly marketing of a society’s produce, but will not grant loans to assist in the speculative holding of the society’s goods. This provision of the Act will enable the board to finance farmers’ co-operative dairy companies, farmers’ freezing works, and all other genuine cooperative farmers’ concerns, handling agricultural or pastoral products. LOANS. “As regards its lending business, the board has decided that it will accept repayment of loans granted at any times convenient to the borrower without premium interest. As a general rule, also, loans to farmers will be granted on an instalment basis fixed according to the circumstances of each individual case under which the loans will be repayable upon reasonable terms by payments spread over the term of the advance. The board has had under consideration the question of assisting wheat growers by advances upon the security of wheat in store, either by way of financing a wheat pool or some such organization or by individual advances. With a view to arriving at some workable scheme an officer of the board proceeded to Christchurch to obtain first-hand information on the subject, and to discuss the proposal with the members of the Wheat Growers’ Committee. It is understood that the Wheat Committee has under consideration the formation of a wheat pool or company on lines which will enable the organization to be registered as a co-operative society and that concrete proposals in this connection will probably be put before the wheat-growers at an early date. When these proposals are definitely known the board will consider the question of providing finance for any such organization, and the terms on w’hich such finance can be made available. DISCOUNTING. “In addition to the three main methods of providing finance for rural credit purposes which have just been described the board is authorized to carry on the business of discounting farmers’ promissory notes and bills of exchange. The nature and limitations of this class of the board’s business are defined by the regulations recently issued under the Act. These regulations provide that in order to enable banks and approved financial institutions to afford financial assistance to farmers the board may discount promissory notes and bills of exchange provided that the maker of the promissory note or acceptor of the bill of exchange, as the case may be, is a farmer and that the promissory note or bill of exchange is endorsed to the satisfaction 'of the board. It is also provided that no person is to obtain accommodation by means of discounted promissory notes or bills of exchange and by advances directly or indirectly from the board beyond a total amount of £lOOO. For the present the rate of discount has been fixed by the board at 6i per cent, per annum. “It has been brought to the knowledge of the board that there are a considerable number of farmers throughout the Dominion who desire loans of small individual amounts for the purchase of fertilizers for increasing the productivity of their properties and for similar purposes. The small amounts of the individual loans and the short terms for which they are required do not appear to warrant the expense which would be involved in taking a chattels mortgage to secure each loan and, after consideration,

the board has decided that it will apply the discounting provisions for loans of this nature. Dairy companies, stock and station concerns and other approved companies of sound financial standing will therefore be able to assist their suppliers or clients to secure accommodation from the board by endorsing their pronsissory notes or bills of exchange. The procedure will be for the farmer to give the company with which he is dealing a promissory note or bill of exchange sufficient to produce the amount for which he requires accommodation and the company will in turn endorse it and hand it to the board, in exchange for the cash representing the discounted value of the note or bill. The board will not require any additional security. For the present it has decided that it will not make a greater sum than £lOO available for any individual farmer by this method.”

Mr Snell explained how the need for such discounting system arose. The manager of a big dairy concern in the North Island had approached the Commissioner to see if his suppliers could be helped by the Act. He explained that many of his suppliers were anxious to borrow £5O or £lOO for the purpose of purchasing fertilizers for their land. They needed the fertilizers at once so that the next season’s feed would be assured. The manager said that out of his 200 suppliers he could pick out at least 100 stable men. All they wanted was a temporary loan of £5O -or so, but it was not practicable for them to burden themselves with valuation fees and mortgages. The Commissioner had devised the plan of discounting. The sum of £5,000 would be advanced to the dairy concern in question and this would be split up in 100 sums of £5O to be loaned to 100 picked suppliers. From each of these a promissory note for £5O woqfd be taken. The factory would endorse the notes and hand them over to the board. The board would, of course, have to be satisfied with the factory’s standing. If any dairy factories in Southland required assistance for their suppliers they should get in touch with the board which, would make the money available. THE REGULATIONS. “The foregoing remarks cover the main principles and provisions contained in the Act,” said Mr Snell. “The regulations deal mainly with matters of machinery and administration, but apart from provisions relating to the discounting business of the board to which reference has just been made, there are two other provisions which should be mentioned. The regulations provide that no procuration fee is to be charged in respect of any loan obtained from the board. This provision will ensure that the cost of obtaining finance from the board is not increased by the charging of any such fees. There is a further provision requiring disclosure to the board of the consideration required for any guarantee of a loan granted by the board. The object of this provision is no doubt to ensure that one of the main purposes of the scheme —the provision of intermediate credit at favourable rates of interest—is not being defeated by an undue consideration being required for the guaranteeing of a loan. FLOW OF CAPITAL. “As has been demonstrated, the broad idea of the scheme is that the board will secure a flow of capital through debenture issues, and it will re-lend those moneys through the permitted channels, at rates of interest only so much in excess of the borrowing rates as necessary to cover administration expense; and enable a sufficient reserve to be made against contingencies. The maximum borrowing and lending rates of the board are as previously mentioned restricted by the Statute at 6 per cent, and 7 per cent, respectively, and it must be remembered that, according to the extent to which the board is able to raise funds at less than 6 per cent, per annum it will no doubt be able to reduce its lending rate below the statutory maximum. As stated previously, the present interest rate has been fixed at 61 per cent, in the case of farmers applying direct and co-operative societies and at 6 per cent, in the case of rural intermediate credit associations. “When the maximum rates prescribed by the Act and the provisional rates fixed by the board are compared with the rates of interest which farmers have been in the past required to pay for finance upon chattels securities, the main class of security contemplated by the Act, it will be seen that, the benefit of the scheme to farmers will be extensive, if, with public support, the scheme is developed to the full extent to which it is capable of development. It is interesting to record that a similar system was introduced in the United States ot America in 1923, and though the period of its existence has been short, satisfactory progress has been made. Debentures issued by Federal Intermediate Credit Banks in America which are in the same position as the Rural Intermediate Credit Board occu pies here, are popular investments commanding very good prices upon the stock market, and a satisfactory inflow of capital for agricultural purposes is provided by these debenture issues. The experience of the system in America speaks well for the success of the scheme in this country.” Mr Snell concluded by urging all farmers to co-operate heartily in a scheme which promised to do so much for them. QUESTIONS. The speaker replied to a number ot questions at the conclusion of his address. Mr G. Matheson, Heddon Bush, inquired whether a farmer who had a loan wished to sell some of his stock had to have his security re-valued and give the proceeds to the board. Mr Snell said that the best method of dealing with stock mortgages had exercised the serious attention of the board. Though no definite scheme had actually been decided on farmers could rest assured that they would not be hampered. At the same time the board had to be protected. If a dairy farmer, for instance, wished to cull some of his stock at the end of a season he would be required to ring up Mr Newth to get his approval before selling. The proceeds would go into the Public Trust office and be credited to the borrower in reduction of his loan. The farmer would naturally want to buy new stock. For that purpose he would get a letter of credit authorizing him to purchase up to a certain value When an auctioneer certified that the stock had been purchased the money would be paid over.

Mr E. Bowmar asked if the five-year limit would be strictly adhered to. He questioned if many farmers could repay in that time.

Mr Snell replied that the board Had been told that a lot of loans would be liquidated under five years. He could not give an assurance that the period would extend beyond five years because the Act declared that to be the limit. There was no reason why any farmer who carried on satisfactorily should not have his loan renewed at the expiration of five years. Mr John Smith asked to what extent would advances be made on a security. Mr Snell said that no definite margin of security had been fixed, and he doubted if it would be. There were many factors to be considered in each individual loan, as he explained by an example or two.

~ Mr R. Arnott asked if the board had considered the financing of the erection of cooperative dairy factories. Mr Snell replied that this did not come within the scope of the Act. Advances could be made on produce, but not on capital expenditure. Mr Rutledge said that the Act was a splendid one and would greatly help farmers, but dairy factories in guaranteeing their cuppliers were being asked to undertake something without security. Mr Snell said that there really was more security than would at first be imagined. He was sure the dairy factories • could protect themselves so that the suppliers whom they guaranteed would have to continue supplying the factory giving the guarantee.

In reply to a further question by Mr Rutledge, Mr Snell said that although he was not in a position to give a legal opinion he thought there was nothing to prevent a factory making a guaranteed supplier sign an agreement that he would put his milk through the factory while it guaranteed his loan*

“How does a farmer get on when he goes bankrupt?” was the concluding question. Is was asked by Mr T. McCann, and caused much laughter. “No worse with us than with any other creditor,” was Mr Snell’s reply. VOTE OF THANKS. “I am sure we have all listened with both pleasure and profit to Mr Snell’s instructive address,” said Mr Bowmar, in proposing a hearty vote of thanks to the speaker. “It was a privilege to listen to a man so well-informed, and we were fortunate in having him sent to us. He has a thorough grasp of all our individual problems and difficulties.” The vote of thanks was carried with hearty acclamation.