THE ROLE OF LAND PAWNING IN SECURING LOANS: THE CASE OF SANGLA IN THE PHILIPPINES

INCE 1970, various rural development projects, such as the introduction and diffusion of high-yielding varieties of rice and land reform programs, have been implemented to address problems stemming from rural poverty. These projects have caused drastic changes in the socioeconomic structures of rural areas (see Hayami and Kikuchi [6] and David and Otsuka [3]). One of these changes is the emergence of the custom known as sangla, which became common in the 1980s in progressive rice-farming areas of Inner Central Luzon and Panay. Sangla is a land-pawning contract in which the pawner temporarily transfers his cultivation rights to the pawnee in return for a loan and can redeem these rights upon loan repayment. It is a characteristic feature of sangla that cultivation rights are not forfeited in the event of loan default. During the contract period, the returns from the land accruing to the pawnee, who assumes all operating expenses including land rent payments, represent implicit interest earned (paid) by the pawnee (pawner). Sangla has been expected to facilitate the mobilization of surplus funds in rural areas, while fears have also been expressed that land pawning will lead to a concentration of landownership and economic stratification (Nagarajan, David, and Meyer [10, p. 104]). As to the background and the determinants of choosing sangla, Nagarajan, David, and Meyer [10] and Nagarajan, Quisumbing, and Otsuka [11] argue that (1) due to a severe contraction in formal lending during the 1980s, land collateral was typically required in financial markets for long-term credit, (2) in the 1980s the declining profitability of rice farming due to decreasing real rice prices and increasing overseas employment opportunities induced a shift in investment patterns toward nonfarm employment and human capital, which in turn increased the de-