they are eligible for the sanitation loan.

At the same time, the model predicts that other loan attributes – particularly the interest rate and the loan label – can also influence household borrowing and investment responses. On the one hand, a lower interest rate can induce households to substitute away from more expensive credit sources, while keeping overall borrowing and investment choices constant. On the other hand, the lower interest rate might make the desired investment more affordable, motivating the investment. Our data and findings do not allow us to establish the relevance of these channels to the same extent that we are for the label.

Our findings have important implications for policy and policy design. Much attention has been given to two widely used approaches to boost sanitation uptake, in particular Community Led Total Sanitation and the provision of subsidies. However, recent literature has raised concerns about the ability of CLTS to boost the uptake of safe sanitation in a significant manner, particularly since it does not relax financial constraints (e.g.Abramovsky et al. 2018, Cameron et al. 2013). While its effectiveness has been shown when implemented with intense follow-up and in combination with subsidies [Pickering et al., 2015, Clasen et al., 2014, Patil et al., 2014], both approaches are very costly and can be difficult to target effectively [Lipscomb and Schechter, 2018]. We establish that sanitation micro-loans offer another viable and effective option that might complement these policies. Indeed, we show in a companion paper (Augsburg et al., 2019) that this intervention, which coincided by chance with the roll-out of the Government of India’s Swachh Bharat Mission policy supports this policy by providing financing for households that are ineligible for SBM subsidies, and bridge funding for subsidy eligible households.

We are not the first to show that micro-credit can be effective in increasing sanitation coverage. BenYishay et al. [2017] established in the context of Cambodia that sanitation demand can be boosted significantly when offering micro-credit for the product. Studies of micro-credit programs that are bundled with specific health investments do indeed more generally report on the presence of the investment as measured by survey enumerators (Benhassine et al. [2015], Tarozzi et al. [2014]). Interestingly though, despite providing construction materials to the door-step of the clients, rather than providing cash, BenYishay et al. [2017] find that only 30-40% of loan-takers had installed the toilet 1.5-2 years after the sales. This conversion rate from sanitation loan to used toilet is significantly lower than in our study context. Not only do we show that conversion rates are higher, but we demonstrate that this can be achieved by providing a loan rather than construction materials. Our study shows that labeling the loan is an effective mean to induce toilet construction, while allowing households to make their own choices about what type of toilet they would like to construct.

We note that context might play an important role in explaining the differences in findings between the two studies. Not only do BenYishay et al. [2017] study a different setting to us – Cambodia – but product design differences might play a role. For one, the credit BenYishay et al. [2017] provide is given as an individual liability loan, whereas in our context loans are joint liability. Attanasio et al. [2015] show that group liability attracts different types of borrowers than individual liability contracts do. Second, our implementing partner introduced a rule that only clients who had been with them for at least one year could avail a sanitation loan, whereas in the context of BenYishay et al. [2017] loans were given to those who wanted to purchase a specific toilet model, regardless of their borrowing 39