# **1 Introduction**

Credit constraints have been shown to be an important driver of low adoption of preventive health investments among low-income households in developing countries. Studies over the past decade have shown that relaxing credit constraints through the provision of cash, with and without conditions, (e.g. Benhassine et al., 2015) or credit bundled with the investment (Tarozzi et al., 2014; Devoto et al., 2012, Guiteras et al., 2016), can boost health investments. Little is known about the effectiveness of providing credit for health investments when the loan is not bundled with the investment, but is associated with it only through the loan label. Poor households face numerous demands on household budgets and a new loan product, especially when characterised by other attractive attributes (such as a lower price), may be taken up without the intended investment being made.

A preventive health investment that is characterised by significant under-adoption in many developing countries is sanitation. Safe sanitation has been recognised to be an indispensable element of disease prevention and primary healthcare programmes (e.g. the Declaration of Alma-Ata, 1978) and is included in both the Millennium and Sustainable Development Goals (MDGs and SDGs). High rates of open defecation have been linked to poor health and higher morbidity (Augsburg and Rodriguez-Lesmes, 2018; Spears, 2012; Kumar and Vollmer, 2013; Pickering et al., 2015 and Dickinson et al., 2015), worse human capital outcomes (Spears and Lamba, 2015); and also constrain economic growth (WHO/UNICEF, 2014). At the same time, an estimated 2.3 billion people do not have access to basic sanitation services, and 4.5 billion people do not have access to safely managed sanitation (WHO/UNICEF [2017]); hence the scale of the problem is urgent.

Microcredit has been postulated as a promising solution to support households in making the significant outlay necessary to construct an individual household toilet. And indeed, BenYishay et al. [2017] show that demand can be boosted significantly when offering microcredit for toilets that is bundled with the delivery of toilet construction materials to the doorstep of the borrower household.<sup>1</sup> To our knowledge, there is no rigorous evidence on the effectiveness of microfinance loans associated with health investments only by their label.

In this paper, we draw on a cluster randomised controlled trial in rural India to study whether a new microfinance loan product, linked to sanitation investments purely through its label feature, can be effective in increasing household investments in sanitation. The trial, conducted among clients of a leading micro-finance institution (MFI hereon), made available micro-loans for sanitation in randomly selected communities in rural Maharashtra. The loans, offered at a lower interest rate relative to productive business investment loans, were to be used for the construction of a new toilet or the repair or upgrade of an existing toilet. Importantly, the loans were not bundled with a specific toilet or materials, and households were left to their own devices to source materials and arrange construction. Moreover, the implementing MFI did not incentivise or enforce use of this loan product for sanitation investment. Thus, these loans can be considered to be purely labelled loans.

> 1This mirrors the approach generally taken when targeting specific investments, e.g. distributing bed-nets, agricultural seeds, etc., rather than providing households with the cash, either in terms of a grant or a loan (see for example Dupas, 2014; Dizon Ross et al., 2017; Miller and Mobarak, 2013).

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