considering whether it supplemented subsidies when toilet costs exceed the subsidy amount. We also discuss potential reasons behind the observed low loan-to-new-toilet conversion rate for this group of households.

# **Provision of bridge-funding to subsidy eligibles**

Given that the bulk of the SBM subsidy amount is disbursed only after a toilet has been successfully constructed, households need funding up-front to cover toilet construction costs. The extent of this is visualised when we examine data on the time lag between toilet construction and subsidy receipt. Figure 5 plots the timing of subsidy disbursement reported in the endline survey and that reported for toilet construction. It shows that over 50% of households who had received the subsidy by the time of the endline survey received the subsidy after toilet construction, with the remaining households report receiving the subsidy either before, or at the same time as toilet construction.<sup>34</sup> Households that reported receiving the subsidy after toilet construction waited an average of 10 months after toilet construction to receive the subsidy, with over 10% waiting for over a year.

This finding can be cross-validated using SBM officials’ report of delays in SBM disbursement, captured during a survey of GP SBM officials in December 2017: Consistent with the client reporting, half of 77 GP officials reported that the time between subsidy application and disbursement was at least 3 months.<sup>35</sup> Overall, these descriptive results confirm that a significant percentage of households experienced a quite substantial time gap between toilet construction and subsidy receipt. This feature of government subsidies could possibly make sanitation loans, which are generally disbursed prior to toilet construction, attractive for financing the upfront costs of a toilet. They could allow households to alleviate short-run liquidity constraints to construct a toilet, and thereafter receive the subsidy. However, if the delay in subsidy disbursement is very long, households will face higher costs of investing in a toilet since they will need to pay higher interest charges since they cannot use the subsidy to repay the loan.<sup>36</sup> If subsidy disbursement delays become apparent after loan take-up, the household may have taken the sanitation loan, but may choose to make another investment in order to obtain funds to repay the loan. Thus, we hypothesise that both the extensive margin (i.e. whether a delay is expected or not)and the intensive margin (i.e. the length of the delay) will influence the loan uptake decision; but the length of the delay will also influence the sanitation loan to new toilet conversion decision if these are realised after loan take-up. In particular, if delays in subsidy disbursement turn out to be substantial, households will be less likely to translate these loans into new sanitation investments.

To examine this, we use variations in average experienced delays in subsidy disbursements across communities. We use reports by community SBM officials during the endline survey on delays in subsidy disbursements experienced by the average household living in their community over the study period. We focus on villages in which SBM officials reported either delays of 1-3 months (‘Small delay’) or delays of 3-6 months (‘Large delay’). Because of coding errors during data collection, we cannot distinguish

> 34Part of the subsidy could have been received before the completion of toilet construction under SBM. However, this observation of subsdiy receipt before toilet construction could be due to recall errors, or due to subsidy receipt for an older toilet that was later replaced.

> 35This information is missing for one GP.

> 36In addition, households might face a higher risk of default or repayment difficulties, risking the longer-term engagement with the MFI.

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