13.— J 4

36

of twenty or more farmers residing in a well defined district should have the right to set up an association if they desired to do so, and the formation of a small associations is quite a desirable feature in view of the local knowledge which is provided and the more effective supervision which is possible. While consent could reasonably be withheld if the operations of the proposed association were to be confined to a small area covered by an existing association operating exclusively in it, or where the association to be formed was of unsatisfactory composition, it would be arbitrary for the Board to prevent the formation of an association in a district which at the time was served only by an association with headquartersJat some considerable distance. Any economy of administration which would be effected as the result of the lending business in one extensive district being transacted through the medium of a single association would possibly be more than off-set by the greater cost of maintaining supervision over the securities. For similar reasons the Board has made it a rule that applications will be accepted only through the associations operating in the districts in which the securities are situated, and that it will not accept from an association an application relating to security situated in an area covered by the operations of another association. Any other course would lessen the value of the local knowledge and supervision provided by the association method. When the provisions for direct loans were incorporated in the legislation it was recognized that the nature of the system and the necessity for economical administration would call for some provision for independent supervision. This need was met by the requirement that each loan should be guaranteed for 20 per cent, or more as might be required by the Board. The provision was inserted as much with the idea that guarantors would in view of their own responsibilities maintain close contact with the securities, thus reducing the supervision to be maintained by the Board, as for the purpose of providing collateral security. The benefit to the Board in the former respect is most pronounced in cases where the guarantees have been given by dairy companies or other concerns with special organizations enabling them to maintain contact with the securities. The arrangement with one co-operative dairy company with which a substantial volume of business has been transacted provides for periodical reports on the securities being furnished to the Board at intervals of three months, six months, or one year, according to the circumstances of the various accounts, with provision for special reports which unforeseen developments may necessitate. In other cases than those mentioned independent measures are taken by the Board to satisfy itself as to the position of the accounts. Arrangements made by the Board with the Public Trustee provide for the services of the farm-inspecting staff of the Public Trust Office being made available for inspections of intermediate credit securities when the officers are in the districts in which the securities are situated. Such inspections are kept at a minimum for reasons of economy, and are mainly limited to cases where the guarantors are not resident in the district, or inspections of selected cases are made as a check upon the supervision maintained by associations or guarantors. The form in which the securities over farming stock and chattels are taken by the Board or associations provides for all proceeds of stock and produce charged as security being paid to the Board or to the association concerned. Where substantial changes are effected in the herds or flocks secured to the Board there will accordingly be adequate control over the disposal of the proceeds to provide protection for the loan-moneys outstanding, and in the case of loans on sheep and grain securities the annual repayments decided upon will be provided out of the surplus revenue for the year included in these proceeds and other income. At the same time the arrangements made for the handling of applications for readvances of the proceeds will ensure that the borrower's operations' are not hindered in any way. In the case of dairy securities the annual repayments and interest are collected in both association and direct loans under orders on the borrower's cream cheques, and the payments received, particularly where orders for percentages of the cream cheques are obtained, furnish a guide as to the productivity of the farms and the progress made by the borrowers. The Board is in touch with the position of all