(i) Non-VG; (ii) VG without toilet at SBM baseline; and (iii) VG with toilet at SBM baseline.

Table 9 displays these findings. Interestingly, impacts on sanitation loan uptake are significantly positive across the board and similar in magnitude, for each type of household, irrespective of their VG status or of their subsidy eligibility status determined by toilet ownership at SBM baseline. Results on toilet uptake, however, reveal that within the subsidy ineligible group, impacts are strongest among non-VG households. These households experienced an impact on toilet uptake of 28pp (significant at the 1% level). Importantly, the results show that there was no impact on toilet uptake for VG households with toilet recorded at SBM baseline, despite the observed impacts on sanitation loan uptake for this sub-group. This suggests that there are unobserved constraints specific to these VG households which do not allow them to translate the sanitation loan into new toilets. Possible reasons include lack of additional financing sources needed to complement micro-credit to cover the actual toilet cost over and above the loan amount; and/or differential perceptions about the benefits of improved sanitation.

Overall, results in Table 9 suggest that a significant portion of non-VG MF client households would benefit from financial support but are - unlike their VG counterparts - unable to access government subsidies. Appendix B compares VG and non-VG households in terms of a wide range of socio-economic characteristics collected during the endline survey, other than those on basis of which official VG status is defined (e.g. caste, female headed, etc.). At endline, non-VG MF client households without a toilet at survey baseline appear slightly better off in terms of some characteristics, particularly in terms of educational attainment of household head and some key productive assets such as agricultural equipment. Overall, however, they are not strikingly different than their VG counterparts, which is not very surprising given the poor settings in which these households reside. These results could explain why non-VG households turn to sanitation loans in the absence of getting access to government subsidies.<sup>28</sup>

# **5.2 Sanitation loan conditions and credit constraints**

As formally shown in ACGMS 2019, the sanitation micro-loan program could have motivated sanitation loan and toilet uptake through three features: (i) relaxation of a credit constraint preventing households from borrowing to invest in a toilet; (ii) the lower interest rate on the sanitation micro-loan (as compared to other loans offered by the partner MFI and other MFIs in the area) reducing the cost of investing in a toilet; and/or (iii) the label attached to the loan allowing households who are sensitive to loan labels, to invest in a toilet.

While we do not have the experimental setup to identify the role played by each of these channels directly, we can use the predictions from the formal model laid out in ACGMS 2019 to see whether, based on different pieces of evidence available, we can favour one channel relative to another. To do so, we need to (in addition to impacts on sanitation loan uptake and impacts on toilet uptake) consider impacts on borrowing behaviour in terms of amounts borrowed and types of loans taken, and impacts on other investments. MF client households that decide to take up a sanitation loan have to necessarily change

> 28Note that our study sample consists of MF client households who, given the MFI’s targeting rules, are on average worse off relative to other households in their villages. Table 1 in ACGMS 2019 provides a comparison of the average characteristics of the MFI client households and those for rural households in Latur and Nanded districts. It is nonetheless surprising that households that are officially classified as being VG appear not to be too dissimilar from non-VG households in terms of their economic status. This suggests that the MFI is good at targeting the most needy households and that it manages to serve households possibly mis-classified as being non-VG.

17