subsidies are not pro-poor because the better-off households capture the subsidies disproportionally. Consequently, expanding rural electrification from SHS programs is not considered to be an effective policy choice for addressing poverty issues, although little empirical evidence exists to validate such claims. The Bangladesh national survey data presents an opportunity to empirically analyze the distributional impact of SHS programs.

# 5.3.1 Policy simulation

The distributional consequences are illustrated using a policy simulation exercise under two assumptions. First, all households currently without grid-electricity are assumed to be entitled to the micro-finance scheme. Second, the private sector agencies who are responsible for implementing the SHS decide program locations at the upzila level. The choice of location is driven by the objective of maximizing SHS dissemination while minimizing the operational cost. Two indicators at the upzila level that are important from the perspective of delivery agencies include: (1) the affordability rate, and (2) the proportion of households living in non-electrified villages, both capturing the SHS market potential as well as the scale of the operational cost.

The distributional consequences are essentially determined by the location choices of the private sector delivery agencies. For example, the implementing agencies may choose to place SHS programs only in locations with a high affordability rate. But it is also likely that these locations have a high concentration of better-off households, in which case the SHS programs will be regressive because better-off households would receive the subsidies disproportionally.

# 5.3.2 Distributional impact

The distributional impact of SHS promotion program is analyzed using the concentration curve (CC). The CC plots the cumulative percentage of the SHS subsidies received by households against the cumulative percentage of household population, ranked by per capita income in ascending order.<sup>10</sup> Therefore, the CC graphically illustrates the share of program subsidies captured by different incomes groups.

The distributional impact of the policy simulation based on the two location choice indicators are presented in Figure 2. Clearly, targeting SHS programs based either on affordability rate or the proportion non-electrified households at the district level will be progressive. As expected, the location choice based on the latter is more equitable, with the bottom 30% of households receiving about 55% of total subsidies, while they only receive about 45% if the targeting is based on the affordability rate. The Annex Table A3 presents a summary of statistics that measure the distribution of SHS subsidies across income distribution as well as the average subsidies received by each decile.

> 10If the CC lies above the 45 degree line of equality, the allocation of subsidies is progressive, with the poor households capturing the total subsidies disproportionately and vice versa if it lies below the equality line. The CC can also be used to compare different policy options - If one concentration curve lies everywhere above another one, the first curve is said to dominate the second one, in the sense that the first curve represents a more progressive policy option than that second one.

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