Given the favorable loan characteristics, the positive and significant demand for the new loan product is only a necessary and not a sufficient condition for the intervention to be effective in improving sanitation.<sup>40</sup> In addition to potentially diverting the sanitation loan for other investment purposes (whose financing product might be more expensive), households might also simply shift their financing source for sanitation itself, implying that even if the loans were used for sanitation, they were not used for toilets that would otherwise not have been constructed. It is therefore possible that the sanitation loan uptake might not translate into new toilets. Thus, we next turn to considering the effects of the intervention on toilet uptake.

# **6.2 Sanitation investments**

The sanitation loan could be used for two types of sanitation investments: (i) construction of a new toilet, or (ii) upgrade or repair of existing toilets. As shown in Table 4, which tabulates responses from clients who took a sanitation loan (as reported in the MFI administrative data) on what they used it for, a majority of clients (73 percent) report using the sanitation loan for the construction of a new toilet. Less than 5 percent report using the loan to upgrade (3 percent) or repair (1 percent) a toilet. A small number of clients report using the loan for sanitation and other purposes. Even if we assume that these clients intended to upgrade or repair an existing toilet, at most 11 percent of clients who took a sanitation loan used it to upgrade or repair a toilet. Thus, the primary _reported_ reason for taking a sanitation loan was to construct a _new_ toilet.

Table 4: Reported loan use

||New toilet|Upgrade|Repair|Other only|Sanitation &<br>other|Total|
|---|---|---|---|---|---|---|
|SL|146<br>(73%)|7<br>(4%)|2<br>(1%)|31<br>(16%)|14<br>(7%)|200<br>(100%)|
|Control|14<br>(70%)|0<br>(0%)|0<br>(0%)|5<br>(25%)|1<br>(5%)|20<br>(100%)|
||160|7|2|36|15|220|
|Total|(73%)|(3%)|(1%)|(16%)|(7%)|(100%)|

_Notes_ : Data source: Client survey and administrative data. Sanitation loan usage was reported for those clients who took a sanitation loan according to administrative data from the MFI and confirmed it during the interview. Hence, information is missing for clients who did not confirm to have taken a sanitation loan in the survey.

The household survey collected information on toilet ownership, whether it was not in use and the reasons for this, and a number of dimensions of toilet quality, which allow us to directly test whether households made a variety of sanitation investments. We focus on three types of sanitation investments: (i) construction of new toilets; (ii) repair of existing toilets; and (iii) upgrade of toilets. We measure the construction of new toilets through (i) toilet ownership, regardless of whether it was functioning,

> 40Even though the evidence presented above suggests that the loan label might have played a role in affecting the demand for the sanitation loan, this does not imply that all households that took a sanitation loan intended to use it for sanitation investments. Some of these households could be less sensitive to the label effect and take the loan to benefit from the lower interest rate.

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