# **4 Does micro-credit support the subsidy program?**

We present the findings from our analysis, which focus on differential impacts of the sanitation microcredit intervention by subsidy eligibility, for our four main outcomes of interest - sanitation loan uptake, toilet uptake, toilet usage and subsidy uptake. For completeness, we also present the average impacts of the intervention on these outcomes for the sample of interest in this paper – households without a toilet at survey baseline.<sup>19</sup>

**Sanitation loan uptake and toilet uptake** We start by considering whether impacts of the sanitation micro-credit on sanitation loan uptake and toilet uptake vary across subsidy eligible and subsidy ineligible households. These findings, presented in columns 1-2 of Table 4, show that first, the new loan product was taken by 19% of the MF client households without a toilet at baseline. Second, Column 2 shows that subsidy eligible households were as likely as subsidy ineligible households to take up a sanitation loan.<sup>20</sup><sup>_,_21</sup> At first sight, this latter finding might come as a surprise given that subsidy eligible households should, in principle, be able to access government subsidies to cover the costs of toilet construction. However, as already mentioned above, in this context even subsidy eligible MF client households might want to seek additional credit to construct a toilet, either as bridge financing or to supplement funding. We will explore these channels in more detail in Section 5.

Moreover, households could have taken the sanitation loan for reasons other than to invest in sanitation. As discussed in ACGMS 2019, the sanitation loans had a lower interest rate than most other loan products offered by the MFI, and loan use was only weakly monitored and not enforced. Therefore, uptake of the loan product does not necessarily represent the desire to construct a toilet. Indeed, ACGMS 2019 provide evidence that, on average, only about 50% of sanitation loans were converted into new toilets, with few of the other loans used for sanitation upgrade or repair. Thus, a significant proportion of sanitation loans were not used for making sanitation investments. It is therefore important to analyse whether, and in how far, sanitation loans were used by subsidy eligible and subsidy ineligible households to make actual sanitation investments, which we turn to next.

Columns 3-4 in Table 4 display impact estimates on toilet uptake as verified by the interviewer during the endline survey in August-September 2017.<sup>22</sup> In Column 3 we find that, overall for MF client households that did not own a toilet at survey baseline, access to sanitation loans improved toilet coverage by over 12 percentage points (statistically significant at the 1% level). This increase represents a 50% increase in toilet coverage in this group of households relative to similar households in the control group. Looking at

> status reported during endline survey.

> 19ACGMS 2019 report the average impacts of the sanitation micro-credit intervention on sanitation loan uptake, sanitation investments and behavior and borrowing behavior for all MF clients, regardless of whether they had a toilet at baseline. Unlike the SBM subsidy, the sanitation micro-credit could have been taken by households with a toilet at survey baseline to upgrade or repair an existing toilet.

> 20Results on the pooled sample differ slightly in magnitude (not in statistical significance) from ACGMS 2019 because here we are using a different sample, that is, one that is restricted to surveyed observations that we managed to match to the SBM dataset and within those only those that did not have a toilet at survey baseline.

> 21Note that at the start of the intervention a few loans got disbursed to MF clients in control sites, as reflected in the control means provided at the bottom of Table 4. This contamination was immediately picked up through a monitoring process and measures were put in place to avoid this going forward. In total this concerns 5 MF clients in control sites in our study sample (1% of all control observations).

> 22Results are very similar when using toilet uptake as reported by the survey respondent. These are available upon request.

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