What is Patronage?
“What is patronage?” That is a common question that we as cooperative lenders get asked often when we tell our potential members that by lending with us they could receive patronage distributions. We’re honest – it is a little confusing, but we’re here to help explain it as simple as possible:
A patronage refund is a way of distributing the association’s net income to its member-stockholders. A member’s refund is based on the proportion of interest earned on his or her loan to the total interest earned by the association. A patronage refund may be paid in cash, allocated surplus, stock, or any combination of these items. It is a way to refund a portion of the interest you paid on your loan. When you receive a patronage refund from Farm Credit, your effective cost of borrowing is reduced.
It’s important to realize that one of the most important financial benefits of being a member-borrower of Farm Credit is having the opportunity to share in the association’s profits. This year alone, we’ve given our members over $36 million through our patronage program! So, you now ask, “How do we do it?” We love answering that one:
At the end of each fiscal year, Farm Credit determines its total income and expenses. Income remaining after all expenses are deducted (the net income) can then be distributed in accordance with the associations bylaws. Our board of directors can elect to retain all of the net income to strengthen the association’s capital position, or distribute some, or all, of the net income to the members by declaring a dividend on stock or declaring a patronage refund.
Are you still confused? Check out this 90 second video that illustrates how patronage works: http://patronage.mafc.com/