8.—14

4

RURAL INTERMEDIATE CREDIT ACT, 1927. 9. The passing of the Rural Intermediate Credit Act of 1927 gave effect to the second portion of the recommendations of the Royal Commission of 1925 on Rural Credits, whose report (8.-5) was presented to Parliament in 1926; the first portion of its recommendations having been dealt with in the Rural Advances Act of 1926, providing for a system of loans on long-term mortgages on the security of rural lands, independent of State subsidy. The Royal Commission—composed of the late Mr. P. 11. Cox, of Wellington, a retired banker ; Colonel J. J. Esson, C.M.G., V.D., J.P., of Wellington, Einancial Adviser to the New Zealand Government, and at present Chairman of the Rural Intermediate Credit Board ; and Mr. W. J. Poison, of Wanganui, president of the New Zealand Farmers' Union, now representing the Stratford Electorate in Parliament —was appointed by the Government for the purpose of conducting investigations of the systems of rural finance operating in the American and European Continents. After an exhaustive examination of the various rural credit systems in force in those countries, the Commission recommended in regard to intermediate credit the adoption of a system similar in its general outline to that in force in the United States of America, which in turn is largely based on European systems. The Rural Intermediate Credit Act, 1927, gave effect to the recommendations of the Commission in regard to intermediate credit, with the provision of an alternative method of direct loan application now appearing as Part 111 of the Act, designed to facilitate applications by farmers in outlying districts who might, in the absence of co-operative rural intermediate credit associations operating in their districts, be prevented from participating in the benefits of the system. The system gives wide scope for the application of the principles of co-operation to farmers' intermediate credit requirements, which is emphasized in the Commission's report as an essential feature of any system of rural finance ; and in practice this applies equally to the direct method of application referred to above as to the association method, as the bulk of applications dealt with under the former heading up to the present have been submitted through co-operative dairy companies. The object of the Act is to provide credit for farmers, for periods ranging from six months to five years, on the security of stock and chattels, at reasonable rates of interest, with liberal terms of repayment, permanency of finance, and the most economical service in every respect. The outstanding features are the financing of the Board's operations by means of debentures secured upon the aggregate of its assets, involving no State liability for the debentures, and the scope which the scheme gives for collective and individual action upon the part of the borrower. The initial funds for investment are provided by an advance from the Consolidated Fund on loan and free of interest for ten years, with a currency of not less than twenty years. The maximum amount of the advance is £400,000, of which one-third must be placed to the credit of a special redemption fund which is, by statute, to be invested in Government securities only and, with the resulting income, is to be applied exclusively for the purpose of redeeming debentures issued by the Board, and the remaining two-thirds is available for use in the Board's lending business. Provision was also made in the Act for an outright grant to the Board of a sum not exceeding £10,000 to cover expenditure necessitated in the establishment and preliminary administration of the system. This grant lias been received by the Board. As pointed out in the Royal Commission's report, the increasing modern tendency in rural finance is the disappearance of the individual mortgagee and his replacement by corporate lending concerns which secure the necessary funds by the issue of bonds secured upon an aggregate of mortgages. This is the general principle of finance which the Dominion system reproduces, as the Board's funds will be principally derived from the issue of debentures secured upon the whole of its assets. The Act 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