RURAL CREDITS

Waipa Post, Volume 36, Issue 2148, 24 April 1928, Page 5

RURAL CREDITS

' MEETING IN TE AWAMUTU. FIRST ASSOCIATION FORMED. The growing interest displaced among farmers in the Rural IntermediatjkGredit Act, 1927, received a fillip on last, when a meeting of was held in Te Awamutu Tov JHxll. Alexander, chairman of Te Awamutu Co-operative Dairy Company, Ltd., presided, and he briefly detailed the steps leading to the convening of the meeting. He was glad to see the meeting was so representative. Mr Alexander said Te Awamutu was a very suitable centre for an association, for there was a very large area of new country being brought in, and many of the occupiers of those lands were young men with plenty of energy but usually lacking sufficient capital for development. Up to the present finance was an obstacle to development, and facilities to obtain finance restricted. It was felt that the new Act would assist in the development of more country by providing necessary finance at a very low rate of interest. The scheme, as he understood it, was truly co-operative and very inexpensive. Mr A. J. Sinclair explained briefly the objects of the legislation, and said that some suppliers of his own co-op-i erative concern had displayed keen interest. It was to give all interested the fullest information that the present meeting was convened. The Act required that applicants for loans must have the backing of an approved financial institution, such as a mercantile firm or a dairy company. Thus the dairy company came in, but thelocal company was not disposed to appjrove this course without the full sanction of shareholders. Other dairy companies had apparently not consulted their shareholders, but that was not the practice of Te Awamutu Co-opera-tive Dairy Company. A delegation from the company had attended a meeting in Morrinsville last week-end, and as an outcome the present meet-

ing was convened. The company was inaugurating the scheme locally, but Mr Sinclair made it clear that the

meeting could form its own association, which would be open to any farmer, not merely to suppliers to Te Awamutu Co-operative- Dairy Company. Mr J. G. Wynyard, president of Te Awamutu branch of the New Zealand Farmers’ Union, said his fellow members were keenly interested, and the legislation was mainly the outcome of continued pressure on the Government by the Farmers’ Union and its worthy president, Mr W. Poison. In his (the speaker’s) opinion the very small charge to be levied on applicants for administrative purposes was inadequate for the valuable- service's to be rendered. The legislation would assist farmers —assistance that could not be obtained from the present-day financial institutions. The time was approaching when the farmers would be ;*s amply recompensed for their work as were townspeople. He thought there should be provision for remunerating local directors, for it was hardly fair to expect them to give their time and experience gratis. Mr F. J. Moore, district supervisor for the Intermediate Credits . Board, was then called upon to explain more fully the Act, the provisions of which he claimed were purely co-operative. Mr Moore set out the details of the special class of limited liability company created by the 1927 Act, and known as a co-operative rural intermediate credit 1 association. The primary object was to enable the farmers of a district to combine for the purpose of financing themselves as individuals on their collective financial strength as a group. This did not inean, however, that a farmer joining an association of such a kind made himself directly liable for the payment by the other members of the association of the'amount which they owed to the association. The greatest amount a member could be asked to pay was the amount of the capital for which he subscribed when he joined the association; and, provided it was run on sound and cautious principles, there was a likelihood of his never being asked to pay the full amount of his capital in the concern. . “ The fitfst step to be taken is that at least 20 persons actively engaged in farming must agree each to take at least 25 shares of £1 each in the association,” continued Mr Moore. “ These persons will then be required to sign a memorandum of association in a standard form contained in the schedule to the Act. This form has been modelled in a general way on that prescribed for commercial companies by the Companies Act. The original members of the association will also* be required to. sign providing for the internal management of the association. Every association is required to adopt these regulations exactly as they stand. You will naturally inquire what exactly are , the liabilities. The answer is that the moist each stands to lose, m the event of the association not proving successful, is £25, providing each member takes up only 25 shares. However, the Acte provides that he must within a year the Association s formation pay not less than Is per allotted shade into the association. A member who has subscribed for 25 shares will probably be asked at the outset to find 25s towards the capital of the association. The directors have power to make further calls as and when the association needs money to meet its liabilities in the event of its making losses on loans. The Act provides that capital cannot be used for expenses that must be invested m Government securities. . . Registration of the association, was the next step, continued Mr Moore. If all requirements were complied with the application was sent to the Board, and 1 if it consented registration was made. Onae the assoc was registered it was able to obtain the Board for the| purpose of re-lending the money to its mem bers at a rate of interest not exceeding 7 per cent, the rate at present fi h X t 6d b Tfoan "however, the Tlefinite obtain a loan, nowevei, , nrnnosal had to be placed before tne Board! had a right to decide whether the security was sufficient. 5 a member held only 25 shares he was aualified to obtain a loan of any amount up to £250, but application for

a larger loan required more shares. The proportion was one share to every £lO of the loan desired. Thus an applicant for £IOOO would take 100 £1 shares, and pay Is per share. Mr Moore outlined the purposes for which the loan was required, such as all improvement work on farms, and also the payment of mortgages, debts, or other liabilities. Further formal details of application were dealt with The persons to whom the association might grant loans were not only the 20 original members, for any farmer could join. “ Like all companies, the association will be controlled by a board of directors,” Mr Moore said. “ The first directors will be five, one a district supervisor, who will be a permanent director. At the statutory meeting all the first directors will retire, and the members will elect four new directors. Most of the other requirements are similar to those of an ordinary company. None of the directors may receive any payment for his services except refunds of travelling expenses. A secretary and a treasurer may be appointed, whether they are directors or not.

“ The Board will charge interest on loans to associations at a rate of 6 per cent, being h per cent less than that charged to borrowers direct from the Board. The Board will, however, make it a condition of its advance to the association that the rate charged to its members shall be 6£ per cent. The Board will also require that the extra h per cent shall be used for establishing a reserve fund against possible losses and as salary to the secrteary-treasurer or travelling expenses of directors. “ The Act states that profits must be applied first in accumulating a reserve of such amount as the Board thinks desirable, to be invested in the same way as the association’s paid-up capital. When the amount is sufficient the profits of the association may be distributed among members. There are only two restrictions upon payment of dividend—the rate of dividend must not exceed 7 per cent, and no dividend is to be paid while the association owes the Board any part of an advance made towards the expenses of forming the association.

“ If a member has received a loan from the association, and has paid it back, he may, if he wishes, leave the association if he does not reduce the remaining members to below 20. Also, if an association can arrange to borrow funds from any financial association approved by the Board for the purpose of re-lending them to' itfe members, it may do so.” Continuing, Mr Moore said he would like to emphasise the point that it was the duty of the Board to the investing public to isee that no loans were made except in cases where there was a fair margin of security. Otherwise the Board would be unable to sell its bonds to the public. Asked whether the £400,000 allocated for rural credits had already been advanced to the Board for lending, Mr Moore said so far the mortey had not been touched, but was lying in the Treasury. There would be no difficulty in drawing from it when the applications came in. In response to another question Mr Moore said the charges made for obtaining a loan and for valuation would be kept at a minimum. These costs were provided for in the regulations, varying from £2 2s to £3 3s, according to the amount applied for inhre-j spect of instruments of security. For deeds of guarantee 10s 6d was charged and the total cost of forming an association should not exceed £9.

Continuing, Mr Moore said the Waikato District Board, at its recent inaugural meeting in Hamilton, decided to employ competent local valuers in various parts of the -district, so that valuations could be made economically. The whole scheme would be carried out at a minimum cost to borrowers.

“ If a man had a herd valued at £2OO, for what amount would it be available, and what would be the basis of valuation?” asked another questioner.

Mr Moore replied that the Board had not yet notified the margin of security required, but it would probably adopt the- customary standards followed by financial institutions. It was pointed out that when a “ weak ” farmer failed to obtain a loan there was no provision made in the Act for a refund of his application money. Mr Moore .said that such a contingency applied only to original subscription members. If, ultimately, 30 men joined, and 10 failed to obtain loans, they were able to withdraw with no liabilities. The advantage of the rural credit system was that suppliers obtained loans at a low rate of interest, while dairy companies had to bear only 20 per cent of .the liability, instead of 100 per cent, as under the existing system. Referring to a remark made earlier in the meeting, Mr Moore said there was no provision made for remunerating district association directors.-His association with leading farmers throughout Waikato convinced him that there were sufficient public-spir-ited men in each of the principal communities to give their services free. That would, he felt certain, also apply to Te Awamutu. Mr Moore went on to read the articles of association, and then quoted the rule bearing on the. application of profits from each association s administration. , If losses were incurred in administration the directors had power to'Call up further share money to meet those obligations, but Mr Moore predicted that there was little likelihood of tnat eventuating. . . . , The method of electing provisional directors and their duties was exPl Arfa'pplicant, on repaying his loan advance, would receive back the whole, or almost all, of his share m< The idea of intermediate credit advances was new to New Zealand, bu in other countries it had long been in operation—even m Egypt among the native agriculturists. Mr Moore predictad that there would be little trouble in raising the necessary funds by way of bonds—bonds backed by the State, and therefore absolutely safe. Mr Alexander mentioned that no doubt district directors would give their services free, but he could not see that any capable secretary could afford to do the necessary work. A

capable secretary was essential, and he should be paid. (Hear, hear.) To a questioner,. Mr Moore said the rate of interest payable on bonds had not yet been determined, but it would necessarily have to be almost the same as on bonds of other institutions. Mr Moore could not indicate the probable total working cost of the rural intermediate credit scheme throughout New Zealand. The Government had advanced £400,000 free of interest for ten years to start the scheme, and there was provision in the Act for the main Board to borrow from the £overnment £SOOO to meet expenses. The £400,000 was available as a reserve for debenture holders, and its re-paym‘ent would not have priority over debentures. The State’s guarantee was confined to £400,000 plus interest. The freqeuncy of further calls on share capital was in the hands of the local association directors. If they managed their affairs economically there would he no need to make any further call.

An applicant was entitled to borrow up to £IOOO, provided he had the necessary security. All documents as between a local association and applicants would be prepared by the association’s own solicitor.

The Act provided for refund of the full amount of share moneys paid, but there was no provision for repayment of a greater amount than the actual sum paid in, despite- the fact that an association might in time have a substantial credit balance.

There was no likelihood of a deputy Public Trustee being available for appointment as secretary. Mr Moore thought that some company secretary might be able to perform the duties of secretary at a small honorarium. It was pointed out that a secretary must kejep a complete set of books, just as any limited liability company had to do.

Mr Sinclair pointed out the need for a substantial and capable directorate, preferably composed of men who would not be seeking loans themselves. Those men, to become directors, would have to join the association, apply for at least 25 shares, and pay the's per cent call. Thus 25s would make available a man of standing. The Act restricted the membership of associations to bona fide farmers. Business men who were not farmers were- debarred. Mr Moore said if the townspeople desired to show their appreciation of the scheme in a prctical manner they could take up bonds. That would be a gesture that would be very helpful, and a practical evidence of goodwill towards the farming community upon which the towns relied. Mr Spinley pointed out that a secretary, handling about £20,000, would have to deal with about 250 applicants —probably more. The provision in the Act for a total payment for all administrative and secretarial work of £SO was therefore inadequate-. The chairman said the deputy Commissioner had told the Morrinsville meeting that there were bound to be some anomalies, and these as met with would be removed. The anomalies could not be foreseen. It was unanimously agreed to form an association, to be called Te Awamutu Co-operative Rural Interniediate Credit Association. Mr Sinclair pointed out that Te Awamutu was the first association ■formed in the Auckland province. Early formation and action were desirable, for funds wede limited. He therefore advised all favourable to the association to join at once. The first five members to enrol were Messrs C. M. Alexander, A. H. Parish, J. G. Wynyard, E. W. McCarter, and B, H, Budden, Several others in the i'oom followed the lead The chairman appealed for more members, pointing out that the rate of interest was the lowest procurable anywhere. “Here is an unequalled opportunity to get money for farm development and herd increasing that does not present itself by any other method,” said Mr Alexander. He added that other farmers not present, and not in need of loans, had offered to join the association, and their assistance would be valuable, but he wanted at least twenty in the room to sign.

The necessary twenty were soon enrolled. „ _ Messrs E. W. McCarter, J. G. Wynyard, C. M. Alexander, and W. F. Woodward were elected to the provisional directorate, with Mr F. W. Moore as the main Board’s representative. . . , . . Mr A. J. Sinclair was appointed interim secretary.