8.—14

14

economical relationship between the investor who has money to lend and the farmer who requires it for carrying on his farming operations. While considerable finance had been provided for the farmers prior to the introduction of the system the money made available by the investor reached the farmer by a roundabout method, involving considerable expense, and thus there had sometimes been a substantial disparity between the interest allowed to the investor who made the money available and that charged to the farmer who eventually received it. One of the chief objects of the new system is to " short circuit" the contact with the investor by raising money in the open market at the lowest current rate of interest, and passing the money on to the farmer with the least possible addition of overhead cost. Another is to establish confidence in the operations of the Board, so that an uninterrupted flow of money may be obtained for investment in the classes of security which may be accepted by it. The tendency in recent years has been for rural securities to go out of favour with investors, who have been prepared to accept lower rates of interest on other securities, in view of the difficulties with which they individually have been faced in ensuring adeqiiate supervision of the farming securities and in the collection of interest and principal on due dates. Under the new system these duties will be undertaken by the Board and its organization, while investors will receive a debenture on which the interest will be promptly paid by the Board and the payment of the principal of which will be well secured. While initial funds to set the scheme in operation were provided by an advance from the Consolidated Fund, which was made available as a loan, not an outright grant, the amount of the advance has now been applied to the full extent permitted by the legislation in the making of loans, and the Board will be dependent for its funds in the future development of the business upon issues of debentures to the investing public. It cannot be anticipated that the debenture issues will appeal to the investing public if the Board does not maintain a prudent standard of investment, measuring the security for its individual loan transactions by that which would be considered satisfactory by the individual investors in the debentures. Any lower standard would depreciate the securities in the eyes of investors, and would have the effect of drying up the sources of finance available to the Board and arresting the development of the scheme. That it was contemplated that advances would be made only against adequate security is clearly indicated by the fact that by the Rural Intermediate Credit Act, 1927, the debentures were constituted trustee securities and authorized investments for moneys under the control of various institutions and State lending departments. Moreover, any other lending policy would be inconsistent with the Board's obligations in respect of the advance received from the Consolidated Fund. So far as borrowers are concerned the system was designed to provide assured finance upon the security of their farming stock and chattels and suitable collateral, on the most favourable terms, over an extended period, with necessary provision for the calling up of any particular loan if essential during the currency of the loan for the protection of the moneys advanced. The benefit to farmers generally will be from the additional funds to be made available for the classes of security concerned, the more favourable rate of interest charged and easy terms of repayment granted, and the security of finance provided where loans are obtained from the Board. In view of the circumstances detailed the Board found it necessary to lay down certain standards to be observed in the consideration of loan applications, in regard to the class of security acceptable to it, the margins of security required, and other matters having a general bearing upon its lending operations, which will ensure that the moneys advanced will be adequately protected. By means detailed elsewhere in this report the members of district boards, the directors and secretarytreasurers of associations, and branch officers of the Board are kept informed of decisions upon matters of policy so that applications may be dealt with in a uniform manner. Anything in the nature of a rigid set of rules for measuring applications is avoided, however, and all circumstances which support the granting of loans are fully investigated, particularly if the personal element is reported to be good. All applications may be said to be dealt with on their own merits in the light of general principles laid down by the Board.