8.—5.
13
consideration of any scheme of rural credit which involved the principle of unlimited liability, an ancient survival which finds no acceptance in modern finance and is repugnant to all English-speaking communities. Intermediate Rural Credit. In order to bridge the gap between the present short-term credit—which compares favourably with that of any of the countries visited —and? long-term credit, an intermediate-credit system is required, and recommendationsfare made accordingly. Intermediate credit, as administered in other countries for formally constituted groups of persons actually engaged in the business of agriculture, and for approved co-operative societies, is of great assistance to the primary industries. For such purposes capital is provided in the United States by the issue of collateral trust debentures with a currency of five years, based upon non-perishable farm-produce and live-stock, with a maximum advance of 80 per cent, of its value. An adaptation of this system is considered suitable to New Zealand. It could be made supplementary to present methods, and could be largely administered through such joint-stock banks and financial institutions who, by arrangement with the State Advances Office, would discount the paper endorsed by approved groups or societies, thereby securing to the Farm Loan Branch the benefit of their knowledge and experience, and to borrowers a reasonable rate of interest due to the approval of their security. To inaugurate the system it is suggested that the assistance contemplated in the Farm Land Mortgage Associations Bill, 1924, should be made available, with an increased maximum advance of £250,000. This is not out of proportion to the assistance provided by other countries where rural credits are operating beneficially to the whole community. The United States, whilst discarding the principle of unlimited liability, preferred to retain the local associations which primarily administer the European systems ; but it is generally recognized that, the main reason for their existence having been done away with, they are not essential to the American scheme, and in fact they create certain difficulties in its administration. Members have a less vital interest than their unlimited-liability European contemporaries, and it is difficult to get the associations to function properly ;in addition to which they impose a barrier between the borrower and the central and responsible authority, thus causing vexatious delay. These disadvantages apply in a lesser degree to intermediate-term credit, which may be administered without the initial reference to central authority which is necessary in the case of long-term credit. The business transacted is also in the nature of an ordinary commercial or trading credit, with which the farmer is already familiar, and is less open to the objection that it destroys privacy. The advantage of collective intermediate credit is obvious when the liability is limited to the share capital provided, and if such capital is in reasonable proportion to the amount borrowed. The methods proposed involve the establishment of co-operative rural intermediate credit associations, to be financed by share capital and capital raised by the issue of collateral trust debentures against the approved paper of individual members, endorsed by the association and secured by chattel mortgage or such other collateral as may be deemed necessary to fully and adequately cover advances. 2. The suggested legislation provides— (a.) That upon receipt of a duly certified schedule of the securities of a duly registered and capitalized association the Farm Loan Board may issue collateral trust debentures to the amount of such advance that it considers reasonable and safe, and to pay the amount realized by the sale of such debentures to the credit of the association. (b.) For the establishment of machinery for discounting members' bills on the endorsement of the association, to whom the borrower must give such security as is considered necessary to secure the association against loss. The directors may, if deemed advisable, assign such security, with all rights appertaining to the discounting institution.