metadata: authors: 0: author: Coville,Aidan
1: author: Galiani,Sebastian Franco
2: author: Gertler,Paul J.
3: author: Yoshida,Susumu
count: Kenya
docna: 0: docna: Financing Municipal Water and Sanitation
            Services in Nairobi’s Informal Settlements
docty: Policy Research Working Paper
theme: Other urban development
majtheme: Urban development
subtopic: Hydrology,Health and Sanitation,Small Private Water Supply Providers,Sanitary Environmental Engineering,Water and Human Health,Water Supply and Sanitation Economics,Town Water Supply and Sanitation,Engineering,Environmental Engineering,Sanitation and Sewerage,Health Care Services Industry
teratopic: Health, Nutrition and Population,Water Resources,Industry,Water Supply and Sanitation,Science and Technology Development,Environment
abstracts: cdata!: This study estimates the impacts of two
            interventions implemented as field experiments in informal
            settlements by Nairobi&#x2019;s water and sanitation
            utility to improve revenue collection efficiency and last
            mile connection loan repayment: (i) face-to-face engagement
            between utility staff and customers to encourage payment and
            (ii) contract enforcement for service disconnection due to
            nonpayment in the form of transparent and credible
            disconnection notices. While there is no effect of the
            engagement, the study finds large effects of enforcement on
            payment. There is no effect on access to water, perceptions
            of utility fairness or quality of service delivery, on the
            relationships between tenants and property owners, or on
            tenant mental well-being nine months after the intervention.
            To counterbalance the increase in payments, property owners
            increased rental income by renting out additional space.
            Taken together these results suggest that transparent
            contract enforcement was effective at improving revenue
            collection efficiency without incurring large social or
            political costs.
geo_reg_key: 119229,517191
repnme: repnme: Financing Municipal Water and Sanitation
            Services in Nairobi’s Informal Settlements
display_title: Financing Municipal Water and
            Sanitation Services in Nairobi’s Informal Settlements
listing_relative_url: /research/2021/07/33244980/financing-municipal-water-sanitation-services-nairobi’s-informal-settlements
topicv3: Sanitation m1326453 2000,Water m1326522 137,Water Supply m1326961 138,Wastewater Collection m1327591 148,Health m1504661 3480
publishtoextweb_dt: 2021-07-01T00:00:00Z
dois: 10.1596/1813-9450-9725
historic_topic: Health, Nutrition and Population,Water Resources,Industry,Water Supply and Sanitation,Science and Technology Development,Environment
origu: Development Impact Evaluation (DIME0)
author_keys: 0: author_key: 1063728
1: author_key: 634921
2: author_key: 428566
3: author_key: NA
model_extractions: Policy Research Working Paper 9725 Financing Municipal Water and Sanitation Services in Nairobi’s Informal Settlements _Aidan Coville Sebastian Galiani Paul Gertler Susumu Yoshida_ Development Economics Development Impact Evaluation Group July 2021
Policy Research Working Paper 9725

# **Abstract**

This study estimates the impacts of two interventions implemented as field experiments in informal settlements by Nairobi’s water and sanitation utility to improve revenue collection efficiency and last mile connection loan repayment: (i) face-to-face engagement between utility staff and customers to encourage payment and (ii) contract enforcement for service disconnection due to nonpayment in the form of transparent and credible disconnection notices. While there is no effect of the engagement, the study finds large effects of enforcement on payment. There is no effect on access to water, perceptions of utility fairness or quality of service delivery, on the relationships between tenants and property owners, or on tenant mental well-being nine months after the intervention. To counterbalance the increase in payments, property owners increased rental income by renting out additional space. Taken together these results suggest that transparent contract enforcement was effective at improving revenue collection efficiency without incurring large social or political costs.

This paper is a product of the Development Impact Evaluation Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at acoville@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# Financing Municipal Water and Sanitation Services in Nairobi’s Informal Settlements<sup>∗</sup>

## Aidan Coville

Sebastian Galiani Paul Gertler Susumu Yoshida

### _JEL Codes_ : C93, D04, O18

### _Keywords:_ Water and Sanitation, Informal settlements, Enforcement, Financial sustainability.

> ∗ _Affiliations_ : Coville: DIME, World Bank, acoville@worldbank.org; Galiani: University of Maryland and NBER, galiani@umd.edu; Gertler: UC Berkeley and NBER, gertler@berkeley.edu; Yoshida: DIME, World Bank, syoshida@worldbank.org.

_Human Subjects and Study Registration_ : The study received local and international ethical clearance from Maseno University (MSU/DRPC/00070/14) and Innovations for Poverty Action International Review Boards (Protocol : 13December-004). The study was registered in the American Economic Association RCT registry (AEARCTR-0003556) _Acknowledgements_ : The authors are grateful to the World Bank’s Strategic Impact Evaluation Fund (SIEF), Development Impact Evaluation Department (DIME), J-PAL/MIT Urban Services Initiative and the International Growth Center for financial support. The authors have benefited from comments by Edward Glaeser, Marco Gonzales, Kelsey Jack, Bryce Millett Steinberg, Guadalupe Bedoya, Gustavo Saltiel, Catherine Signe Tovey, Josses Mugabi, George Joseph, Ruth Kennedy-Walker, Jeffrey Mosenkis, Laura Burke, Douglas MacKay, Chris Prottas, Mitsunori Motohashi, Martin Gambrill, Arianna Legovini, Keziah Muthembwa, Camille Nuamah and participants in the 2019 Cities and Development conference, the 2020 NBER Summer Institute Urban Economics Conference, and from a seminar at NYU in Abu Dubai. The study would not have been possible without the continued efforts and long-term collaboration with the Nairobi City Water and Sewerage Company staff including Nahashon Muguna, Jackson Munuve, Kagiri Gicheha, Jason Mwangi, Beldina Owade, Christine Machio, Paul Mwarania, Ephantus Mugo, Martin Nangole, Lucy Njambi, Daisy Nyaboke and Owen Wanjala. Likewise, we thank Christine Ochieng, Paul Mbanga, Wendy Ayres, Rajesh Advani, Jessica Lopez and Clifford Mwaura from the World Bank who helped ensure a strong link between the research and operational activities. The Kenya Innovations for Poverty Action (IPA) team provided professional field support throughout the program, with particular thanks to Frank Odhiambo, Bonnyface Mwangi, Geoffrey Onyambu, John Paul Buleti, Allison Stone and Alice Kirungu. The authors also benefited from excellent research assistance from Amy Dolinger, Marco Valenza and Duncan Webb. DIME Analytics provided technical support throughout the analysis with Luiza Andrade conducting code reproducibility checks. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. The authors have no financial or material interests in the results in the paper.
# **1 Introduction**

Some 844 million people lack clean drinking water and 2.4 billion people do not have improved sanitation, most of which are living in low- and middle-income countries (LMICs).<sup>1</sup> An estimated US$ 1.7 trillion is needed to finance the goal of universal access by 2030 (Hutton and Varughese, 2016). With two-thirds of the world’s population expected to live in cities by 2050, finding scalable and sustainable solutions to expand reliable urban water and sanitation services is critical. However, basic service provision is not keeping up with rapid urbanization. Africa’s cities, for instance, grew by 80% between 2000 and 2015, while access to piped water declined from 40% to 33% (World Bank, 2017).

The primary route for expanding services in urban areas is through public utilities, but utilities are struggling to deliver reliable services to connected households let alone increase coverage (Trimble et al., 2016; World Bank, 2017; Soppe et al., 2018). Revenue collection has become a major stumbling block for utility performance (Ahluwalia, 2002; World Bank, 2017). Losses from nonpayment of service use bills are significant. Utilities worldwide failed to collect an estimated US$ 39 billion of billable water and US$ 96 billion in electricity charges each year (Liemberger and Wyatt, 2019; Northeast Group, 2017). Nonpayment for services lowers effective prices, and when effective prices fall below marginal cost, each new customer becomes a financial liability and may lead to rationing (Burgess et al., 2020; McRae, 2015).<sup>2</sup> Water rationing is not only inconvenient but can have negative impacts on health (Galiani et al., 2005; Ashraf et al., 2021). There is well-documented concern over service quality degradation worldwide from poorly maintained infrastructure, and the vicious cycle between low payment and deteriorating quality of services (Jiménez and Pérez-Foguet, 2011; Cronk and Bartram, 2017; Foster et al., 2020; Dzansi et al., 2018; World Bank, 2017).

More financial stress comes from the problem of paying for the significant last mile connection costs that constrain household access to the utility’s services (WaterAid, 2007; Golumbeanu and Barnes, 2013; Lee et al., 2020). Significant investments in urban trunk infrastructure are underutilized when households close to water and sewer lines do not connect (Kennedy-Walker et al., 2020). While subsidies have been effective at increasing household connections (Lee et al., 2020; Guiteras et al., 2015), they are costly, potentially regressive, and are limited by public budget constraints (Abramovsky et al., 2020).

Providing credit to households to amortize upfront connection costs offers an attractive

> 1World Bank (water): https://www.worldbank.org/en/topic/watersupply; World Bank (sanitation): https://www.worldbank.org/en/topic/sanitation

> 2Many utilities have tariffs that even when fully paid do not cover operating costs, and, in settings where only a minority have access to piped services, introduce a regressive subsidy in favor of connected households (Abramovsky et al., 2020).

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alternative to subsidies. For example, the provision of credit increased piped water connection rates in Morocco by 69% (Devoto et al., 2012). To overcome thin credit markets, utilities are taking out commercial loans that they use to finance loans from the utility to customers. Customers then repay these loans through additional installment payments to their monthly bills. There is, however, an inherent financial risk to utilities if customers do not repay their loans. Nonperforming loans must be paid for through either service degradation or out of general tax revenues.

In Nairobi, until recently, household-level piped water and sanitation were not available to residents living in informal settlements. Settlement residents, who make up an estimated 60% of Nairobi’s population, typically live in multi-household compounds with a shared pit latrine and purchased water from utility public water kiosks and private vendors. In 2014, Nairobi’s utility began expanding compound-level piped water and sanitation services to informal settlements. Compounds were offered a combination of subsidies and loans to finance the US$ 1,100 cost of connection to the new trunk lines. This consisted of a US$ 750 (69%) subsidy and a loan for the rest. The utility obtained a commercial loan that they used to finance the loans to property owners. Property owners then agreed to repay the loan to the utility over time by adding installment payments to their monthly water and sewerage bills. Between 2014 and 2018, the utility expanded services to 137,000 previously unconnected people in informal settlements (World Bank, 2019).

However, after the expansion, the utility experienced significantly lower revenue collection than originally anticipated. In 2016, 40% of the newly connected property owners had yet to make a single service or loan payment and the average share of bills and loans paid fell from above 65% in 2014 to below 50% in 2018 (Figure 1). Service quality also deteriorated over this period from 95% of compounds with piped water reporting having received service in the past week in 2014 to 40% in 2018. In response, the utility considered two strategies to improve revenue collection: (i) an engagement approach to encourage payment; and (ii) service contract enforcement that allowed for disconnection for nonpayment.<sup>3</sup> Both approaches are commonly used by utilities around the world to improve revenue collection efficiency, but limited evidence exists on their costs and benefits (Hernandez and Laird, 2019; Szabó and Ujhelyi, 2015). In this paper we report on the results of a field experiment designed to test both strategies.

The first approach was a face-to-face meeting between tenants and the utility’s existing outreach team to explain the financial status of the water and sewer bill, the consequences for

> 3The utility requested support from the research team based on a long-standing relationship that began in 2012 related to the last mile connection issues. See appendix for a description of the other interventions designed to enhance revenue collection considered at the time.

2
the utility, and discuss what they could do to encourage property owners to make payment. The idea was to empower renters to discuss such matters with property owners because service disconnection would be a violation of their rental agreements as 93% of tenants had piped water included in their rent. While the utility had primarily targeted property owners in their previous outreach efforts, this new approach was designed to strengthen bottom-up accountability.

The second approach was to systematically enforce the terms of the contract that the property owners had signed with the utility, specifying service disconnection for property owners with significant payment arrears.<sup>4</sup> Prior to the study, 82% of property owners were eligible for disconnection under the contract’s terms, which made implementation of the _de jure_ policy infeasible. As a result, the _de facto_ application of the disconnection policy was _ad hoc_ , which could potentially limit contract enforcement effectiveness and create opportunities for extortion (Ashraf et al., 2016). Given the significant subsidy and loans given to property owners for last mile connections and the importance of the sustainability of service quality, the utility was in the process of systematizing contract enforcement to improve revenue collection.

Contract enforcement is key to sustaining the rule of law and the process of economic development (Glaeser and Shleifer, 2002). However, contract enforcement was potentially risky for both the utility and for its customers. From the utility’s perspective, enforcement would be effective if it improved payment and social costs were low. Currently connected residents would benefit if the utility used the new revenues to improve service quality. Currently unconnected residents would benefit if enhanced revenue collection were used to expand connections. However, households that are disconnected could face added burdens in the form of increased cost and reduced access to water sources. The utility might also face increased customer dissatisfaction with perceived fairness and service quality leading to loss of political support for the utility and government.

These potential risks motivated the utility to pilot enforcement to better understand the costs and benefits. In practice, this meant exempting from disconnection a set of compounds who otherwise would have been considered for disconnection to serve as a control group, while ensuring compounds in the treatment group followed a clearly articulated contract enforcement implementation plan. The criteria for disconnection were set at a substantially higher level of nonpayment than specified in the contracts for more selective targeting. Enforcement was then implemented along a strict selection protocol governed by (1) systematic identification of all disconnection-eligible compounds, (2) randomly selecting a subset to receive

> 4Service disconnection for nonpayment was explicitly specified in the contract signed by property owners when they agreed to receive the infrastructure upgrades to their property.

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disconnection notices with clear instructions on how to pay or appeal for a financial hardship exemption, (3) allowing a reasonable period of time for property owners to pay or appeal, and (4) disconnecting services if they did not pay at least some of their outstanding bill in a timely fashion or apply for a financial hardship exemption.

The intervention was implemented in a context where water and sanitation charges were affordable, i.e., significantly below the 3% (water) and 5% (water and sanitation) thresholds of monthly income for service affordability set by the United Nations (United Nations, 2010). In addition, alternative water sources were available through utility-run public kiosks and private vendors, which were the primary sources of water prior to the 2014 expansion of utility piped water. During the intervention rollout, the utility maintained a transparent and convenient process through which property owners could delay payment and disconnection in the case of distress.<sup>5</sup> Using administrative data from the utility’s electronic billing and payment system, we find that contract enforcement significantly increased both the likelihood of property owners making a payment, and the overall amount paid. However, most of the change in payment behavior took place shortly after enforcement took place, with no evidence of further increases over time. This could be because the enforcement intervention was implemented as a one-time policy and not as a permanent change. We also find no evidence of spillover effects in the form of improved payment behavior among control property owners with compounds in treatment clusters. The face-to-face engagement intervention had a precisely estimated null In addition to the observed payment behavior, we did not find evidence that tenants were negatively affected nine months after implementation of the enforcement intervention. Using survey data, we find that water and sanitation service connections were not meaningfully different between treatment and control compounds. This is because most property owners whose service was disconnected were reconnected after agreeing to a payment plan. During service interruptions tenants had access to water from kiosks operated by the utility and private vendors and reported no reductions in water use nor increase in spending on water. Moreover, we do not find evidence that the disconnection policy negatively affected either tenants’ or property owners’ perceptions of fairness and quality of water service delivery, nor did the policy affect the relationships of tenants and property owners. Finally, tenants were no more likely to move out.

To counterbalance the effective increase in utility fees paid, property owners increased their rental income predominantly by renting out additional space. Together, these results suggest that the transparent contract enforcement of the disconnection policy increased pay-

> 5More details related to the study’s ethical considerations can be found in the appendix.

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ment and improved the financial position of the utility without incurring any observed social costs on the tenants and property owners or political costs to the utility.

# **2 Contributions to the Literature**

A significant body of research explores approaches to expanding access to services. With a few exceptions (Devoto et al., 2012; Galiani et al., 2005), this work predominantly focuses on rural settings (Lee et al., 2020; Whittington et al., 2020).<sup>6</sup> Problems with both expanding access and service quality can be linked back to financial constraints. Our work adds to the literature testing strategies to improve payment behavior and thereby relaxing financial constraints on service delivery.

Despite the frequent use of service disconnections for nonpayment by utilities worldwide,<sup>7</sup> to our knowledge, there are no experimental studies that estimate their potential impact. Jack and Smith (2020) explore the role of pre-paid electricity meters on service payments and consumption patterns in South Africa. Pre-paid meters offer a technical solution to payment problems by ensuring that customers only receive service if they provide upfront payment rather than more standard post-paid systems and can be programmed to include loan repayments. In effect, users are disconnected if they do not prepay. The study found that switching to pre-paid meters reduced electricity usage by 14 percent, but still increased overall municipal revenue through improved revenue collection. Pre-paid meters for water were piloted in a few middle-income neighborhoods in Nairobi but were abandoned because of vandalism and high fixed costs of installation (Heymans et al., 2014).

There is some limited evidence that outreach campaigns improve service payment. Szabó and Ujhelyi (2015) find that simply delivering a payment “education campaign” increased payment rates by 25% in an informal settlement in South Africa, although the effects were short-lived. Rockenbach et al. (2019) find that information campaigns designed using psychological commitment techniques increase payment by between 30-61%, but again only had short run effects. More broadly, interventions that try to improve bottom-up accountability – typically from communities to place pressure on service providers - have mixed results that may be influenced by the heterogeneity of these groups and the existing top-down accountability measures in place (Björkman and Svensson, 2010; Olken, 2007; Serra, 2012).

> 6Increasing sanitation coverage in rural area has been challenging when relying purely on behavioral change approaches (Briceño et al., 2017; Cameron et al., 2019), and there has been more traction when this is combined with financial subsidies, although this increases program costs (Clasen et al., 2014; Guiteras et al., 2015).

> 7For example, an estimated 15% of households in the United States received service disconnection notices and 3% were disconnected in 2015 (Hernandez and Laird, 2019).

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Observational studies provide insights into determinants of service payment behavior such as households strategically delaying payment as a form of credit (Violette, 2020) or the perceived ease of payment and social pressure being associated with prompt payment (Mugabi et al., 2010). While experimental work on improving utility revenue collection has started to grow, these papers mostly rely on administrative billing and basic demographic – data to assess impacts and typically limit their attention to two dimensions payment and consumption behavior (Allcott, 2011; Jack and Smith, 2020; Szabó and Ujhelyi, 2015; Rockenbach et al., 2019). Our study combines five years of daily administrative billing data with rich primary survey data from property owners and tenants over the course of three years on a range of outcomes that helps present a more comprehensive assessment of the potential welfare implications of utility interventions.

Our study also contributes to the high-stakes contract enforcement approaches to improving regulatory compliance. The evidence on high-stakes contract enforcement is particularly limited, especially when compared to lighter-touch information/engagement interventions. The existing evidence on enforcement is mostly limited to developed country settings, most prominently in the tax evasion literature (Slemrod et al., 2001; Kleven et al., 2011), and to a lesser extent in environmental protection (Telle, 2013; Duflo et al., 2018). The small number of studies exploring high-stakes enforcement in developing countries find significant impacts. In Brazil, de Andrade et al. (2016) randomize inspections and fine firms if they are found to be operating without a business license and find that the intervention increases business registrations. In Costa Rica, Brockmeyer et al. (2019) find significant increases in tax payments from credible enforcement emails. In Kenya, Bedoya et al. (2021) randomize a regime of high-intensive inspections of health facilities with enforcement of warnings and sanctions, including the risk of closure if they do not have a license to operate. These inspections successfully increase compliance with minimum patient safety standards for all types of facilities without increasing patients’ payments or reducing facility use.

# **3 Institutional Context**

Like many LMICs, Kenya’s constitution established the right to “reasonable standards of sanitation” and “clean and safe water in adequate quantities”, and Kenya’s Vision 2030 set a goal of universal water and sanitation coverage. Achieving this vision faces important challenges. Nairobi’s urban population has tripled over the past 25 years,<sup>8</sup> but access to safely managed water fell from 62% in 2000 to 50% in 2017.<sup>9</sup> Water supply for existing customers

> 8UN population dynamics data 2021

> 9Joint Monitoring Program data: https://washdata.org/data/household!/

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was only able to meet about 70% of demand and even that is with intermittent supply (NCWSC, 2017).<sup>10</sup> Like in many developing countries, sanitation coverage is significantly lower than water access, with approximately 18% of Kenya’s urban residents having a sewerconnected facility (Kenya National Bureau of Statistics et al., 2015).

# **3.1 Expansion into Informal Settlements**

Nairobi’s water services board, Athi Water Works Development Agency, expanded water and sanitation trunk lines into many of Nairobi’s informal settlements between 2012 and 2016. After the trunk infrastructure was in place, Nairobi’s water and sanitation utility could offer compound-level connections to the piped system. Property owners were able to connect their compounds to the trunk lines by signing a contract agreeing to be responsible for paying water and sanitation consumption and loan charges, and to service disconnection in the event of nonpayment. The utility offered each property owner a comprehensive infrastructure upgrading package including (i) upgrading of existing latrines to be connection-ready including filling pit latrines and building superstructures where needed; (ii) a single piped water connection to the compound; (iii) a wash basin; (iv) a 400-liter water storage tank for when supply was temporarily unavailable; and (v) the physical connection of the latrine(s) to the newly built sewerage line.<sup>11</sup> – The unsubsidized cost of this full package was approximately US$ 1,100 twice the average monthly income of property owners in the target areas. The World Bank provided grant financing to reduce the connection costs by 69%, and the utility took commercial loans to finance loans from the utility to property owners for the rest. Property owners paid off the loans in monthly installments of US$ 6 (US$ 4.50 for sewer and US$ 1.50 for water) added to the monthly service use bills.<sup>12</sup> This was offered to property owners on a voluntary opt-in basis, if they agreed to the terms of the contract and paid a US$ 16 upfront – deposit. Since these monthly loan installments were highly affordable representing 1.1% – of property owner income on average over 90% of property owners agreed to participate.<sup>13</sup> This resulted in an estimated 137,000 people living in Nairobi’s informal settlements gaining

> 10While significant investments to expand water supply to the city are underway, rationing is expected to continue. This limited supply is exacerbated by cartels that damage utility infrastructure and control water supply in some parts of the city. Cartels were not active in the specific study areas during the time of the research (World Bank, 2019).

> 11The water connection program started prior to the sanitation expansion. Compounds started receiving water connections from 2014, but only started receiving sanitation connections from 2016. Investment in the water connection was a prerequisite for sanitation upgrading.

> 12We use an exchange rate of 1 USD = 100 KES throughout.

> 13These loan installment payments were lower than the drudging cost of pit latrines, about US$ 8.00 per month, that many residents used prior to trunk line services.

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access to compound-level piped water and sewer services between 2014 and 2018 (World Bank, 2019).

The model to finance the last mile connection costs relied on the assumption that property owners would repay their loans and pay the monthly service fees. During the course of the program, however, it became clear that that the utility faced critical nonpayment issues. In 2016, 40% of connected property owners had yet to make a single service payment or loan installment even though the average property owner had already been connected for 1.3 years. Moreover, the average share of bills and loans paid fell from above 65% in 2014 to below 50% in 2018 (Figure 1).<sup>14</sup> Service quality deteriorated substantially over this time period, including a city-wide rationing program that started in early 2017. Based on data collected from a panel survey of 587 households from one of the settlements, the proportion of compounds that received water from their water point in the week prior to the survey fell from 95% to 40% between 2014 and 2018.<sup>15</sup>

# **3.2 Compounds and Residents**

Characteristics of property owners and tenants living in one such informal settlement, Kayole Soweto, are presented in Table 1 for owners and Table 2 for tenants.<sup>16</sup> In Kayole Soweto, almost all property owners are sole owners of their compounds with self-reported sales’ values of about US$ 20,000 on average. Property owners are 51 years old, are 60% male, 54% have completed secondary education or higher, and make US$ 551 in income per month on average from all sources.

Property owners rent out space in 86% of the compounds and make the compound their principal residence in about half. On average, the rental compounds have 7.7 distinct rental rooms, and generate US$ 115 per month in total rent per compound, or US$ 83 in income after deducting expenses. Approximately three quarters of tenants have written or verbal month-to-month rental agreements and paid a deposit in 47% of the cases. Eighty percent of individual tenancy rents fall between US$ 15 and US$ 35 per month and averages US$ 25. A tenant makes US$ 137 on average in income per month which translates into an average total compound renter income of US$ 1,306.

The primary source of water in the informal settlement is piped water. The utility connects a single piped water and sewer line that serves the entire compound which is considered a single customer. The property owner is responsible for paying the water and

> 14The program target was an 80% collection rate, which is consistent with the Kenyan regulator guidelines. 15We use data from a listing exercise that we conducted in 2014 and combine this with an updated listing exercise conducted by the utility in 2018 which is described in further detail in Section 7.

> 16Based on a survey of property owners and a random sample of their tenants conducted in Kayole Soweto in 2015/2016.

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sanitation bill, and these services are explicitly included in the rent in 93% of the compound rental agreements. Customers use Jisomee Mita, a web-based ICT platform that enabled property owners to use a mobile phone to self-read meters, receive and pay water bills, and check their current balance at any time. While 80% of compounds have a piped water connection, 7% report that their connection is not working. Because many households are unable to access piped water in their homes, the utility also operates water kiosks where residents can purchase clean water at a regulated price of US$ 0.2 per kiloliter.

# **3.3 Utility Charges and Reasons for Nonpayment**

Piped water is affordable relative to income in this setting. In 2016 the average monthly water service bill for Kayole Soweto property owners was US$ 4.20, which accounts for 3.6% of compound rent, 0.3% of total compound resident income, or 1.1% of property owner income. An additional US$ 6 per month was charged by the utility to repay the water connection loan (US$1.50 for 30 months) and the sanitation loan (US$ 4.50 for 60 months). Sanitation services were charged at 70% of the water consumption bill. Even with the inclusion of the loan repayment, the total monthly contribution is significantly lower than the 3% threshold used by the United Nations to assess water affordability and 5% threshold including sanitation (United Nations, 2010). However, even with reliable service and affordable tariffs, nearly 40% of property owners had yet to make a single payment for services since being connected 1.3 years ago on average and the average time since the last payment was made was 6 months. As a result of this nonpayment, property owners owed US$ 24 on average for past water use and behind on US$ 38 of their infrastructure loan repayments.

Why did property owners not pay their loans or consumption bills? Figure 2 presents property owner self-reported reasons for (i) not making a payment in the last 2 months and (ii) never making a payment based on self-reported data collected from a 2018 survey of 5,091 property owners in six settlements. Service quality was the most cited reason for nonpayment, reported by about half of respondents, lack of liquidity was the second most cited reason, and third was not knowing how to make payments. The payment system and billing infrastructure were not a perceived constraint.

Next, we look at correlates with payment behavior within a regression framework, using the 2018 survey data merged with the utility administrative billing data. The sample consists of compounds that (i) have a water connection and (ii) have tenants. The dependent variables include whether the property owner ever made a payment; (ii) the proportion of bills paid; (iii) the outstanding proportion of water connection loan; and (iv) whether the loan has been fully paid.

9
Two takeaways are clear from the results presented in Table 3. First, the associations are consistent with reasonable priors: Property owners receiving better service, living on the property, and more knowledgeable about payment procedures have better payment practices – for both loans and consumption charges. Second, self-reported reasons for nonpayment appear consistent with actual behavior measured in the regression analysis but also overestimate the role of some factors. Service quality is presented as the single most important self-reported reason for nonpayment. While the regression analysis identifies this as an important contributor, it explains a substantially smaller amount of variation in payments than the self-reported reasons for nonpayment.

Another factor that may influence payment behavior is accountability and enforcement. The official policy of the utility allows for disconnection of water services if a property owner is more than 30 days in arrears and has not responded to a formal notice after 15 days. Property owners are notified and given at least 15 days to pay before service is cutoff or to appeal for a delay in payment based on financial difficulty. Property owners are informed of and consent to this remedy in their service contracts that they sign at the time of connection. In practice, implementation of the disconnection policy was partial and _ad hoc_ in terms of determining which of the eligible property owners would be disconnected. The disconnection policy is challenging to implement in informal settlements because of the potential for social and political costs associated with disconnections, the potential for some property owners not to be able to pay due to financial constraints, and the sheer size of the problem: 82% of property owners were eligible for disconnection based on the formal policy, as of July 2018.

# **4 Interventions**

To ensure basic information constraints were not to blame for low payment rates, an initial awareness campaign was rolled out by the utility to all property owners in the six targeted Nairobi informal settlements in August and September 2018. The utility delivered the following activities in sequence: (i) A phone call to the property owner to collect up-to-date contact information, provide basic information on how to read meters and pay bills, and share their latest account balance on record; (ii) an on-site meter reading to ensure accurate billing records; and (iii) an SMS to property owners providing the account balance based on the meter reading.

Two additional approaches to encourage payment were rolled out experimentally by the utility. The first was an engagement intervention in which compounds in payment arrears received a face-to-face visit from the utility informing tenants about the current balance, how payments could be made, and the importance of ensuring the property owner makes 10
payment for the utility to be able to provide quality service and avoid disconnection. Utility staff followed a specific script loaded onto a tablet during each visit to ensure uniformity in intervention delivery (see appendix). This intervention took place during September and October of 2018 after the initial awareness campaign described above.

The second approach applied contract enforcement of the disconnection policy for nonpaying property owners. Compounds in payment arrears were given official notification that they had to make payment, or their services would be disconnected.<sup>17</sup> This intervention included the following steps to ensure enforcement was targeted, transparent, fair and credible: _Targeting_ : Among disconnection-eligible property owners in treatment areas, a tighter selection rule was applied than the official policy to target those in significant arrears. Disconnection eligibility was determined by the number of months a property owner had not paid, and the outstanding balance. This differed slightly by settlement. All property owners needed to have an outstanding consumption balance of more than US$ 25, or around six months of consumption charges for the average compound. This typically meant that they would also be behind in paying their service connection loan. In addition, property owners in two settlements where the program had first started operating needed to have missed at least the past three months of service payments, while property owners in the remaining settlements needed to have missed at least one month of service payment. The average service balance among those presented with a disconnection notice was US$ 76 or around 18 months of the average consumption bill.

_Transparency_ : Property owners were contacted by utility community-development agents, or CDAs, a minimum of five times over a four-month period to alert them about their arrears and eligibility for disconnection. Communication campaigns were designed by sociologists employed by the utility that had been working in the study settlements for many years and had long-term relationships with community leaders.<sup>18</sup> The communication started with the awareness phone call from the utility in August/September 2018. This was followed in October/November 2018 by a notice posted to the compound door and next to the water point warning property owners of disconnection if payment is not made by a specified deadline and providing a contact number for coordinating a payment arrangement or disputing the

> 17The study was designed specifically to measure the impacts of tenant engagement and disconnection policy enforcement. Of course, these two options are not exhaustive and there may be other policy avenues that could be more effective. In fact, the government considered a broader set of options before ultimately settling on studying engagement and enforcement.

> 18These sociologists had also been responsible for leading regular community meetings prior to, and during the infrastructure construction activities, and worked with the CDAs to deliver general awareness campaigns on how to effectively utilize the upgraded water and sanitation facilities. This meant that the utility had a daily presence in the settlements through the CDAs, and this was the primary route of communication between the utility and communities.

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bill (see appendix for example). The notification ensured that tenants were also informed about the procedure. Third, an SMS warning and fourth, a phone call warning was made to the property owner prior to the notification deadline, alerting them to pay within 48 hours or be disconnected. Finally, the utility visited the compound on the deadline and made a last request for payment before proceeding with disconnection.

_Fairness_ : All property owners agreed to the utility’s disconnection policy in writing at the time of receiving their water and sanitation infrastructure upgrade. Poster notifications included a contact number for property owners or tenants to contact the utility and dispute their balance or provide justification for why they were unable to afford to pay for the service and agree on a payment plan. If property owners were found to be indigent and/or agreed to a flexible payment plan, they would not be disconnected. Tenants were made aware of the outstanding balance and could also pay the bills themselves to avoid disconnection. If none of these remedies were taken and service was disconnected, tenants could revert to the status quo prior to receiving the piped services - purchasing water from various water kiosks operated privately or by the utility in the settlement. Since piped water was intermittent, these were the same water sources tenants were currently using in conjunction with their piped services.

_Credibility_ : The utility followed through with disconnections if there was no attempt by the property owner or tenants to make any payment. However, although the official policy requires property owners to pay a reconnection fee and the full outstanding balance, this was not enforced in this setting, and property owners that showed a willingness to cooperate with the utility could be reconnected. Since the reconnection process was quick and low-cost this meant that people could be reconnected soon after disconnection with limited cost.

The implementation of disconnections in this setting are low-cost, reversible activities. The disconnection costs the utility approximately US$ 3.30.<sup>19</sup> Reconnection costs are similar in magnitude to disconnection costs. The disconnection notices were delivered from 29 October to 7 November of 2018, with follow ups and disconnections taking place during November and December of the same year.

> 19Disconnection costs include communication costs of notifying the customer (printing the poster notification, the phone call reminder and the SMS reminder) of about US$ 0.30 plus labor costs of the disconnection of about US$ 3.00. The disconnection is conducted by a trained utility staff member who is paid approximately US$ 30 a day.

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# **5 Experimental Design**

All informal settlement property owners in the utility database were first called to confirm contact details and receive the base intervention. Eligibility criteria into the study included: (i) property owners were able to be contacted and their contact details could be updated; (ii) their payment accounts were in arrears and (iii) property owners did not hold multiple accounts (multiple-property owners). All eligible property owners then received the basic information intervention and contact details were updated. Figure 3 describes the experimental design and sample selection. Starting from the group of 5,091 property owners that completed the phone survey in August 2018, just over 50% (2,584) indicated that they had tenants residing in the property. These 2,584 accounts were randomly assigned into a group of 1,292 who received the engagement treatment and an equally sized control group. The engagement intervention was successfully implemented in 885 (69%) of the 1,292 accounts assigned to the treatment group. Reasons for non-compliance included not being able to find the property, tenants being unavailable at the time of visit, and incorrect recording of the compound as having tenants when this was not the case.

For the enforcement intervention, we started with the same 5,091 accounts used for the engagement intervention and removed two informal settlements because these settlements are characterized by multi-story apartment blocks where individual disconnections pose a technical challenge. The remaining sample of 3,253 accounts from 4 settlements (which included compounds with and without tenants) were then clustered by street using GPS and address data. This generated 147 distinct street clusters. We then randomized 73 clusters consisting of 1,584 accounts into the treatment group, while the remaining 74 clusters (1,669 accounts) were left as pure controls. Within the treatment clusters there were 649 compounds eligible for disconnection, and 327 of these were randomly assigned to receive the disconnection notifications, following the protocols described in Section 4. The remaining 322 control compounds in the treatment clusters, as well as the 674 disconnection-eligible compounds in pure control clusters were exempted from the policy for the period of the study. Figure 4 illustrates how the two-stage randomization was applied in one settlement to allow us to test for direct and spillover effects associated with the enforcement intervention. The disconnection notices were ultimately delivered to 299 compounds (91.4%). In the remaining cases (28), compounds were found to have already had their services disconnected by the utility in which case no notice was delivered. The number of compounds actually disconnected was 96 or 2.9% of the 3,253 compounds eligible for disconnection in the study.<sup>20</sup>

> 20In six additional cases, despite property owners not coming to an agreement with the utility, enforcement was not possible because of of the technical complexity of the connection.

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Of these, 74% had tenants.

The two interventions were implemented sequentially. The engagement intervention was implemented in September and October 2018, while the enforcement intervention was implemented in November and December of the same year.

# **6 Empirical Strategy**

The engagement intervention was individually randomized among compounds with tenants, and we estimate the intention to treat (ITT) effect by means of its sample analog: where _Yit_ is the outcome of interest for compound _i_ at month _t_ p _t_ “ 1 _,_ 9q after the intervention was completed; and _Ti_ is equal to 1 if compound _i_ is assigned to receive treatment and 0 otherwise. Note that treatment status does not change over time. We condition the analysis on settlement fixed effects and estimate robust standard errors.

The enforcement intervention was delivered as a clustered randomization. In this case we estimate the ITT by means of its sample analog: where _Cj_ is the cluster _j_ indicator which is equal to 1 if the cluster was assigned to treatment and 0 otherwise. The sample in both treatment and control clusters includes only disconnection-eligible compounds. Finally, to measure spillovers to the non-treated units (SNT) for the enforcement intervention, we estimate the sample analog of: In the estimation of the sample analogs of equations [2] and [3] we condition on settlement fixed effects given that the randomization was stratified at that level. Standard errors are clustered at the street level, which was the level at which the randomization was assigned.

# **7 Data and Outcomes**

We use high-frequency administrative billing and payment data from the utility to measure our primary payment outcomes. Jisomee Mita is a web-based ICT platform that enabled property owners to use a mobile phone to self-read meters, receive and pay water bills, and 14
check their current balance at any time. Jisomee Mita data contains water consumption, invoice amounts, payment history, current balance, and contact information of the property owner. When payments or balance checks are submitted, the Jisomee Mita data are updated automatically. However, monthly standing charges are applied to each account independent of whether a property owner made a payment or billing enquiry which means that each property owner’s balance is updated at least once a month.

The billing data is complemented with tenant and property owner survey data. A short baseline listing phone survey of property owners was conducted in August and September 2018. This captured ownership and water/sanitation connection status, property owner residency and number of paying tenants in the compound.

From August to October 2019 a follow up survey of both property owners and tenants included in the enforcement intervention captured data on rent, service-level satisfaction, political engagement, property owner-tenant interactions, water use and practices, mental well-being and general demographic measures of one randomly selected tenant and the corresponding property owner from each compound in the sample.

We use utility billing data to generate payment outcomes. This includes: (1) the proportion of property owners making a payment for water/sewer charges since the intervention, (2) the total amount paid by property owners’ post-intervention and (3) the proportion of outstanding service charges paid post-intervention. The data spans the entire period from when the first property owners were connected in 2014 up to nine months after the interventions were implemented (September 2019).

We rely on the follow up tenant and property owner survey to measure a range of outcomes that assess the possible welfare effects of the enforcement intervention. We collect measures related to water and sanitation infrastructure and use to assess how the intervention may have affected access: whether the compound had a pour-flush toilet and piped water connection at the time of the endline, whether the water connection was working, the main source of water used by compound residents, the amount of time spent fetching water in the last week, the amount spent on water in the last month, and the overall piped water consumption in the compound. We also capture a range of outcomes that may be affected by the intervention and changes in water and sanitation access. Here we combine like outcomes into weighted, standardized indices following Anderson (2008) to reduce the potential for false positives from multiple hypothesis testing. We generate the following indices (full list of sub-indicators is presented in the appendix Tables A1 and A2): _Tenant-Property owner relationship_ : For the property owner index this includes property owner perceptions on whether tenants complain about the water and sewer facilities or about the general conditions of the compound, and whether tenants keep the compound in 15
a good condition. For tenants, we simply ask how they would rate their relationship with the property owner from 1 (very poor) to 10 (excellent).

_Perception of service quality_ : Tenant / Property owner agrees or strongly agrees that they are satisfied with utility services, the utility services improve people’s lives and provides clear communication, the government is trying to improve their lives, and (reverse coded) the government is not interested in helping the community.

_Perception of service fairness_ : Tenant / Property owner agrees or strongly agrees that the utility enforcement mechanisms are fair and bills are accurate and fair.

_Activism_ : Whether the compound has a committee, tenants have reached out to community leaders, participated in community meetings, or are members of community committees.

_Psychological well-being_ : We include a set of standardized measures to capture different dimensions of psychological well-being among tenants, including Cohen’s four-item stress scale (Cohen et al., 1983), depression (Center for Epidemiologic Studies Depression (CES-D) seven-point scale (Radloff, 1977)), optimism (Rosenberg optimism questionnaire (Rosenberg, 1965)), and the World Value Survey (WVS) measures of happiness, trust and life satisfaction. The psychological well-being index in turn is a standardized weighted average of these sub-indices.

In addition to the indices, we measure rent and rental income, migration and general socioeconomic measures of property owners and tenants to explore possible effects on rent and associated gentrification. We report the results from the indices in the main paper and include the results of all sub-indicators in the appendix Tables A1 and A2.

# **8 Results**

## **8.1 Baseline Balance**

We present descriptive statistics and baseline comparisons between treatment and control groups for our primary outcome measures using the administrative payment data on 6 August 2018 and 28 October 2018 to coincide with the download dates for the data sets used for the randomized assignment of the engagement and enforcement interventions respectively. Appendix Table A3 presents comparisons for each group and we find balance on most key measures covered.<sup>21</sup> Only 2 out of 45 comparisons are statistically significantly different from zero at conventional levels.

> 21Regressions used to estimate the treatment effects reported below are replicated including variables that are not balanced as covariates and neither the sign nor significance of any of the estimates change.

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# **8.2 Payment Behavior**

We find a precisely estimated null effect of the engagement intervention for all primary payment outcomes and time periods measured in Table 4. The control group payments increase steadily over the nine-month period from 30.1% of property owners having made payments one month after the intervention to 55.8% having made at least one payment by nine months (cumulative). However, compounds being exposed to the engagement intervention track almost the exact same trajectory as their control comparison. The total amount paid, and proportion of balance paid off are similarly indistinguishable across treatment and control group.

In contrast to the engagement intervention, we find a sharp increase in payment behavior among compounds exposed to the disconnection notices (Table 5). The likelihood of payment within one month almost quadruples - increasing by 30 percentage points from 11 percentage points (p-value < 0.001). This difference in payment likelihood sustains through the nine-month period, although with a slight decline relative to the control group. A similar pattern is found for the total payments after one month, which increases by US$ 8.80 (p-value < 0.001) from a base of US$ 5.02. After this sharp initial increase, the difference remains roughly constant between treatment and control groups while both increase over time. Treatment compounds have paid off 11.3 percentage points more of their balance than control compounds after the first month of intervention (p-value < 0.001). Control compounds begin to catch up gradually over the nine months, closing this gap to 7.8 percentage = points (p-value 0.005).

Figure 5 presents the full time series data available from the daily payment information extracted from the utility billing database. The visualization strengthens the main messages identified through the regression results. First, we find strong evidence of balanced payment practices across treatment and control groups from 2014 when property owners first started connecting to October 2018 just before the enforcement intervention. Second, we see that the payment trajectories continue to overlap after November 2018 when comparing the engagement intervention group to the control. Third, we see a sharp jump in the enforcement intervention group immediately after the intervention was delivered, which then stabilizes over time, suggesting that most of the impact identified in the regressions is driven by the behavior change in the first month after the intervention.

# **8.3 Spillovers**

To test for spillovers on the payment behavior of disconnection-eligible property owners we compare control compounds in treatment clusters to the equivalent disconnection-eligible 17
property owners in control clusters and find no significant difference between the groups, suggesting no discernible spillover effects from the program using our originally specified empirical strategy for estimating spillovers (Table 6, Panel A). In Table 6, Panel B we report similar results for disconnection-ineligible property owners suggesting that the enforcement intervention had no observable spillovers on paying property owners either.

# **8.4 Heterogenous Treatment Effects on Payment Behavior**

We consider two sets of sub-group analysis. First, the calculus for resident property owners is likely to be different to that for non-resident property owners (the former would be more directly affected by service disruption in the enforcement intervention, and potentially more accessible in the engagement intervention). Second the constraints and decisions to make payment may be different when considering the intensive (getting payers to pay more) versus the extensive margin (inducing those that have never made a payment to start paying). The appendix Tables A4 and A5 present sub-group analyses for property owner residency status and the intensive vs. extensive margin of payment respectively. In both cases we find no clear evidence of strong differences across these subgroups.

# **8.5 Water Access and Use**

To measure social and economic costs of the enforcement intervention we use survey data collected nine months after the intervention, as reported in Section 7. Estimated impacts are presented in Table 7. The enforcement intervention had little effect on compound connections to water and sanitation services. The majority of the 96 disconnected compounds were reconnected after agreeing to pay a portion of their balance. We observe 27 of these compounds made a payment after being disconnected, with 20 of these payments being made within one month of the disconnection. The remaining compounds were reconnected without requiring a payment if they agreed on a plan with the utility. Compounds receiving the enforcement intervention have statistically indistinguishable piped water and sanitation connection rates at endline. This remains true when considering whether the piped water connection is currently working. We also find little evidence of illegal connections based on enumerator observation (3 cases across the sample).

Many households with piped water do not report this as their primary water source. Only 30.6% of control households report using piped water as their main source of water, which is 4.4 percentage points higher among treatment households, but non-significant (pvalue=0.243). Many households in both groups are more likely to rely on water kiosks or boreholes (40%) than piped water. Both groups report spending similar amounts on water 18
for all uses in the last month (Control: US$ 6.62; Treatment: US$ 6.86; p-value = 0.803) and total time spent collecting water in the past week (Control: 118 minutes; Treatment: 100 minutes; p-value = 0.388), although this measure is noisy. Unsurprisingly then, we find no changes in overall piped water consumed based on meter readings at compounds during the endline survey. Overall, nine months after the interventions, access to water and sanitation were indistinguishable between treatment and control groups.

The study had originally intended to include child health as a secondary outcome and had collected maternal-reported illness symptoms for children under five. However, we choose not to include analysis of these outcomes for two reasons. First, sample sizes were very low since not all surveyed households had children under five. Second, it is unlikely that there would be any impact on health since there was no impact on the primary mechanism through which the intervention could have impacted health, i.e., access to water and sanitation services.

# **8.6 Performance Perceptions and Political Costs**

We find no effect of the intervention on perceptions of service delivery quality and fairness among property owners or tenants (Table 7). Similarly, we find no impacts on the strength of the relationship between property owners and tenants, as reported by either group. Community activism among tenants, too, does not differ across groups. All indices have effect size point estimates with small absolute values, and the signs of these differences vary, suggesting no obvious pattern. The full set of indicators from which these indices are calculated is presented in the appendix, which similarly finds no discernible pattern (Appendix Tables A1 and A2). The only significant difference found is an 11.3-percentage point improved perception among property owners that “water bills are accurate”. Given the high number of variables and potential for false positives, we interpret the results overall as showing no meaningful impact of the intervention on any of the outcomes measured.

# **8.7 Psychological Well-Being**

In total we measure seven constructs (depression, life satisfaction, stress, happiness, selfesteem, trust, and life orientation), collected among tenants. We find no impact of the intervention on the overall psychological well-being index which combines these sub-indices (Table 7). The full set of seven constructs is presented in the appendix, which finds no statistically significant differences across these either (Table A6).

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## **8.8 Rental Market**

We find that property owner rental income increases significantly from US$ 62.58 by US$ 23.88 (p-value = 0.019; Table 8). Interestingly, this does not appear to be driven by increases in tenant rental prices. Control households report paying US$ 33.06 a month in rent, which is indistinguishable from treatment household rents. While property owners in treatment areas are slightly more likely to have increased rent in the past six months, this is only 3.6 percentage points higher and borderline significant (p-value = 0.091) in the treatment group which cannot explain the significant increases in rental income that they receive. However, we find a large and significant increase in the proportion of property owners renting out at least part of their compound, which increases from 58.9% by 13.5 percentage points (p-value < 0.001). Since there is a small imbalance in this indicator at baseline, we rerun the analysis, including this measure as a lagged dependent variable and find that the significant increase holds, although with a reduced point estimate on both the proportion of property owners renting out their compound, and rental income. The results suggest that property owners responded to an increase in effective water and sanitation service charges from increased contract enforcement by becoming more likely to rent out parts of their compound. This increased rental income to cover the increased costs.

# **9 Conclusion**

The status quo in delivery of basic services excludes millions of poor households. Achieving universal access to improved water and sanitation requires innovations in service delivery approaches to help reduce the gap between available resources and the estimated costs of achieving national and global targets. Low-income households in urban centers facing high growth rates and stressed infrastructure are of particular concern. While providing credit to overcome high upfront costs to water and sanitation infrastructure connections has been shown to substantially increase take up in some settings, the sustainability of this model of infrastructure expansion is predicated on the repayment of loans by customers. In six of Nairobi’s informal settlements where compounds received comprehensive water and sanitation infrastructure upgrades, we find repayment on these loans, and payment of general service charges, is well below targets, despite these charges being affordable under standard global benchmarks.

We test two common interventions used by utilities to improve revenue collection ef– ficiency. The first a face-to-face engagement intervention aimed at spurring bottom-up accountability from tenants to property owners, had a precisely estimated null effect on pay20
ment behavior in our setting. The second intervention – contract enforcement in the form of targeted, transparent, flexible and credible disconnection notices quadrupled the likelihood of property owners making a payment in the month of the intervention. We see limited evidence of further increases nine months after the intervention, and no evidence of potential spillover effects of the enforcement intervention on other property owners. This is possibly attributable to the fact that owners viewed the enforcement intervention as a onetime event rather than a permanent change in policy.

We did not find evidence that residents were negatively affected by the contract enforcement intervention nine months after implementation. Water and sanitation service connections and water consumption were not meaningfully different between treatment and control compounds. This is because most property owners whose service was disconnected were quickly reconnected after agreeing to a payment plan and during service interruptions residents had access to water from kiosks operated by the utility and private vendors. Moreover, contract enforcement did not affect either tenants’ or property owners’ perceptions of fairness and quality of water service delivery, nor affect the relationships of tenants and property owners. Finally, tenants were no more likely to move out. Taken together these results suggest that transparent contract enforcement was effective at improving revenue collection efficiency without incurring large social or political costs.

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-

- World Bank (2019). Implementation completion and results report nairobi sanitation oba project. Technical report.

26
# **Figures and Tables**

Figure 1: Revenue Collection Efficiency and Number of Utility Customers <!-- Start of picture text --> 2015 2016 2017 2018 2019<br>Date<br>Proportion of bills paid Number of customers<br>.75<br>10000<br>.7 8000<br>.65<br>6000<br>.6<br>Number of connections<br>Proportion of total bills paid .55 4000<br>.5<br>2000<br><!-- End of picture text --> _Notes._ Blue line shows the proportion of payments received from total bills (including consumption and loans) over time; Red line shows total number of utility customers in informal settlements having either a piped water connection or both a water and sewer connection.

Figure 2: Self-reported Reasons for Nonpayment <!-- Start of picture text --> Didn't receive<br>water<br>Don't have<br>money<br>Don't know how<br>to make payment<br>Didn't know that<br>I needed to pay<br>Account is<br>not yet set up<br>Don't<br>have time<br>I'm not responsible<br>for making payments<br>Meter is<br>broken<br>Payment system<br>was not working<br>0% 20% 40% 60%<br>No payment for more than 2 months Never paid<br><!-- End of picture text --> _Notes._ Based on property owner self-reported reasons for not paying, captured during the August/September 2018 listing exercise. Multiple choices were allowed. N is 2,488 for not making in more than 2 months and N is 1,387 for never paying.

27
<!-- Start of picture text --> Enforcement intervention<br>Disconnection sample*:<br>Sample: 5,091 accounts 3253 accounts/ 147<br>clusters<br>4TM oe<br>ngagementinterventionene Treatment: Control:<br>1,584 / 73 1,669 / 74<br>With tenants: Without tenants:<br>2,584 2,507 Disconnection-<br>eligible accounts:<br>649<br>Control:: Treatment:: Control: Treatment: SpilloverP<br>1,292 1,292 322 327 Control:<br>674<br>ae WO<br>: ee ATT<br>ee Se + UNMET EnTn<br>Miomees asic? eeeoxpietee eranoe HITTMU la|e<br>WS Se Sat Slee «Ze 22 G5 SS LS E- S* “22s Se ce Se Sem = SSeS<br>eeW2 "Ss25 SESS SuSS SSWEsSaye ES|S SSSa). SH2' ee= SSFe SeSe teSe Sale we \e- 222 22aT 22 Res \ce eeSasee eaeof == S=Rh=— | ill<br>F2\=_\s2 ice ctSS TCAS= S=SHE=eagamaVS SS Ets|teCREESe= 222meri PelecsdlySaleEES ICSF=seGOOSN OESZ\e=| "=peeES |S=| s-Ee ESRTES=|S|=<br>rome WWE WL = PSS Fa (ssc ap “4, Ga Ge So 22\ S2\ == CERles<br>\ SSS — Be (_) repre fas WAC eae \S<br>\ / iW=|WN.=5|=== M5 = S eS EL \S- S eE SS =pinto SE) =r asee HT H2SSS REHS SF BFea RESAN EEESS Le Sc SElee\Slear Zes e lee2geasareeZ<br>—~ AW | Fes ie in,-<br>== ==\\=- aa ‘ ———_ samme Treatment cluster<br>ee | Eas=v, j f — SY “TM— ~<br><P / mae Control cluster<br>@ Treatment compound<br>@ Control compound<br><!-- End of picture text -->
Figure 5: Intervention Impacts on Payment Behavior <!-- Start of picture text --> A. Impact of Engagement on B. Impact of Targeted Enforcement on<br>Proportion of Paying Customers Proportion of Paying Customers<br>2018.8 2019 2019.2 2019.4 2019.6 2019.8 2018.8 2019 2019.2 2019.4 2019.6 2019.8<br>Date Date<br>Engagement Control Enforcement Control<br>C. Impact of Engagement on D. Impact of Targeted Enforcement on<br>Total Amount Paid (US$) Total Amount Paid (US$)<br>2014 2016 2018 2020 2014 2016 2018 2020<br>Date Date<br>Engagement Control Enforcement Control<br>.6 .6<br>.4 .4<br>.2 .2<br>0 0<br>Proportion of paying customers Proportion of paying customers<br>150<br>80<br>100<br>40<br>50<br>Total amount paid (US$) 0 Total amount paid (US$) 0<br><!-- End of picture text --> _Notes._ All figures present the impacts of the experimental interventions on payment behavior using utility billing data over time. Panel A shows the cumulative distribution function (CDF) of the proportion of people making at least one payment over time (post-intervention), comparing property owners in the control (red) and engagement intervention (blue) group. Panel B shows the CDF comparing property owners receiving the enforcement intervention vs. control. Panel C shows the total cumulative amount paid by property owners over time, comparing the engagement and control groups. Panel D shows the cumulative payments of the enforcement vs. control group. Black dashed vertical line is the date at which the enforcement intervention began. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated.

29
Table 1: Property Owner Baseline Summary Statistics

||Units|N|Mean|Median|SD|
|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|
|**Owner demographics and income**||||||
|Age|Years|2255|51.25|50.00|13.55|
|Male|%|2287|59.73|-|49.06|
|Secondary education or higher [1]|%|2266|54.50|-|49.81|
|Monthly income [2]|US$|1633|550.70|250.00|825.27|
|**Property wealth**||||||
|Property owner is sole owner of compound|%|2287|94.23|-|23.33|
|Property is fully paid of [3]|%|2275|98.51|-|12.14|
|Estimated property sale value|US$|1759|20000.00|17500.00|16400.50|
|**Rental activity**||||||
|Owner occupied without tenants|%|2287|13.77|-|34.47|
|Rental property with resident property owner|%|2287|33.58|-|47.24|
|Rental property with non-resident property owner|%|2287|48.67|-|49.99|
|# of rental dwellings in compound [4]|No.|1881|7.68|7.00|5.25|
|**Rental income**||||||
|Monthly rental income [5]|US$|1722|114.54|90.00|108.88|
|Monthly proft (revenue – expenditure)|US$|1648|83.31|60.00|106.75|
|Monthly electricity bill|US$|1543|12.26|5.00|19.65|
|Property owner pays electricity bill|%|1943|44.47|-|49.71|
|Monthly water bill [6]|US$|3318|4.20|2.54|9.18|
|Property owner pays water bill|%|1525|91.93|-|27.24|
|**Water repayment practices**||||||
|Length of time being a customer|Years|3324|1.31|1.63|0.64|
|Current balance|US$|3324|23.66|9.82|48.08|
|Outstanding water connection loan|US$|3327|38.30|46.58|25.47|
|Number of unique payments made|No.|3324|3.96|2.00|5.08|
|Time since most recent payment|Years|3324|0.50|0.36|0.50|
|Percent that have ever made a payment|%|3324|60.74|-|48.84|
|**Toilet facilities and sanitation services**||||||
|Number of toilets in compound|No.|2281|1.53|1.00|1.18|
|Current toilet type [7]||||||
|Pour-fush|%|2287|36.99|-|48.29|
|Pit latrine|%|2287|59.34|-|49.13|
|Monthly expenditure on sanitation [8]|US$|1133|8.19|5.83|15.27|

_Notes_ . 2016 property owner baseline survey data used except for "Water payment practices" which uses March 2016 utility billing data. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated. [1] Includes some secondary education or higher. [2] Estimated as rental income divided by the percentage rent of total income. [3] Includes property that is received for free or inherited with a mortgage paid off. [4] Assumes 92% reduction factor from dwellings to households, and assumes households equals 1 if property owner resides in the compound and does not rent out dwellings. [5] Includes actual rental income received. When including all rental that was not received for the month prior to the survey, the average monthly rental income would be US$ 134.42. [6] Using billing and payment data as of March 2016. [7] Options do not sum to 100% as some compounds have multiple types. [8] Conditional on having a pit latrine.

30
# Table 2: Tenant Baseline Summary Statistics

||Units<br>(1)|N<br>(2)|Mean<br>(3)|Median<br>(4)|SD<br>(5)|
|---|---|---|---|---|---|
|**Demographics and water access**||||||
|Household size|No.|4178|3.23|3.00|1.57|
|Household total income|US$|3208|136.77|100.00|137.71|
|Compound total income (at compound level)|US$|1673|1308.27|985.50|1307.96|
|**Compound has piped water**||||||
|Yes|%|2097|73.06|-|44.38|
|Yes, but not working|%|2097|6.29|-|24.29|
|No|%|2097|20.65|-|40.49|
|**Main source of water**||||||
|Piped into compound|%|1844|72.78|-|44.52|
|Public tap/standpipe|%|1844|5.15|-|22.11|
|Water kiosk, tube well, or borehole|%|1844|20.23|-|40.18|
|Other|%|1844|1.84|-|13.46|
|**Rental market**||||||
|Deposit was paid|%|3958|46.97|-|49.91|
|Deposit amount|US$|1841|29.80|25.00|19.35|
|Monthly rent amount|US$|4154|25.16|25.00|16.77|
|**Does the rent include water?**||||||
|Including with unlimited water usage|%|3164|79.52|-|40.36|
|Including with limited water usage [1]|%|3164|13.53|-|34.21|
|Not including water bill|%|3164|6.95|-|25.44|
|**Type of tenancy agreement**||||||
|Written agreement|%|3920|7.63|-|26.55|
|Verbal agreement|%|3920|68.52|-|46.45|
|No agreement|%|3920|23.75|-|42.56|
|Rental agreement is month-to-month|%|2985|99.53|-|6.83|
|Years living in compound|Years|4176|2.98|2.00|3.78|

_Notes_ . 2015/2016 baseline data from a sample of 2 to 3 tenant households reported in this table. Responses include property owners when they live in the compound. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated. [1] Incurs additional charge after certain amount.

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Table 3: Correlates with Payment Behavior

||Ever<br>made a<br>payment|Proportion<br>of invoices<br>paid|Proportion<br>of loan<br>outstand-<br>ing|Connection<br>loan fully<br>repaid|
|---|---|---|---|---|
||(1)|(2)|(3)|(4)|
|Property owner resides in the compound|0.034**|-0.029*|0.080***|-0.054***|
||(0.014)|(0.017)|(0.026)|(0.015)|
||r0.017s|r0.087s|r0.002s|r0.000s|
|Compound received water last week|0.169***|0.191***|-0.276***|0.125***|
||(0.012)|(0.015)|(0.023)|(0.013)|
||r0.000s|r0.000s|r0.000s|r0.000s|
|Property owner knows how to pay the bill|0.215***|0.224***|-0.204***|0.090***|
||(0.015)|(0.018)|(0.027)|(0.016)|
||r0.000s|r0.000s|r0.000s|r0.000s|
|Compound has tenants|0.006|-0.005|-0.032|0.013|
||(0.013)|(0.015)|(0.023)|(0.014)|
||r0.661s|r0.744s|r0.157s|r0.342s|
|Property owner pays water bills|-0.004|0.020|-0.034|0.002|
||(0.018)|(0.022)|(0.034)|(0.020)|
||r0.827s|r0.378s|r0.309s|r0.911s|
|Years with a water and/or sewerage connection|0.208***|0.127***|-0.050***|0.116***|
||(0.006)|(0.008)|(0.011)|(0.007)|
||r0.000s|r0.000s|r0.000s|r0.000s|
|Property owner knows how to read the meter|0.012|-0.006|-0.014|0.011|
||(0.014)|(0.017)|(0.026)|(0.015)|
||r0.410s|r0.727s|r0.577s|r0.466s|
|Property owner knows how to check balance|0.004|0.032|-0.056*|0.045***|
||(0.016)|(0.020)|(0.030)|(0.018)|
||r0.818s|r0.108s|r0.059s|r0.010s|
|Observations|4175|4164|4175|4175|
|R-squared|0.432|0.237|0.148|0.209|

*** ** * _Notes_ . Standard errors in parentheses; P-value in brackets. p<0.01, p<0.05, p<0.1. Payment outcomes are derived from the billing data and compound outcomes come from the property owner listing exercise in August/September 2018. Settlement fixed effects included.

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Table 4: Impacts of Engagement on Payment

||Made at <br>payment|least one<br>within. . .|Total a<br>paid wi|mount<br>thin. . .|Propor<br>bala<br>paid wi|tion of<br>nce<br>thin. . .|
|---|---|---|---|---|---|---|
||1 month|9 months|1 month|9 months|1 month|9 months|
||(1)|(2)|(3)|(4)|(5)|(6)|
|Coefcient|-0.005|-0.002|0.049|-0.575|0.013|0.008|
||(0.018)|(0.019)|(0.642)|(2.011)|(0.017)|(0.015)|
||r0.776s|r0.928s|r0.939s|r0.775s|r0.436s|r0.616s|
|Observations|2584|2584|2584|2584|2584|2584|
|Control Mean|0.301|0.558|6.958|38.343|0.497|0.484|

*** ** * _Notes_ . Standard errors in parentheses; P-value in brackets. p<0.01, p<0.05, p<0.1. Sample includes all compounds that were included in the randomization procedure to assign the tenant-level engagement intervention. Time periods are based on the end date of the intervention (November 2018) and use data downloaded from the Nairobi Water billing data for December 2018, and September 2019 to estimate impacts 1 and 9 months after the intervention respectively. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated.

Table 5: Impacts of Contract Enforcement on Payment

||Made at <br>payment|least one<br>within. . .|Total a<br>paid wit|mount<br>hin. . .|Propor<br>bala<br>paid wi|tion of<br>nce<br>thin. . .|
|---|---|---|---|---|---|---|
||1 month|9 months|1 month|9 months|1 month|9 months|
||(1)|(2)|(3)|(4)|(5)|(6)|
|Coefcient|0.300***|0.195***|8.783***|9.078**|0.113***|0.078***|
||(0.039)|(0.043)|(1.714)|(4.154)|(0.025)|(0.027)|
||r0.000s|r0.000s|r0.000s|r0.031s|r0.000s|r0.005s|
|Control Mean|0.110|0.334|5.026|24.722|0.268|0.300|
|Observations|1001|1001|1001|1001|1001|1001|
|Number of Clusters|142|142|142|142|142|142|

_Notes_ . Clustered standard errors based on the level of randomization (street) in parentheses and associated p-value in brackets. *** p<0.01, ** p<0.05, * p<0.1. Sample includes all compounds that were included in the randomization procedure to assign the disconnection notices (enforcement) intervention. Time periods are based on the end date of the intervention (November 2018) and use data downloaded from the Nairobi Water billing data for December 2018, and September 2019 to estimate impacts 1 and 9 months after the intervention respectively. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated.

33
Table 6: Spillovers from Contract Enforcement

||Made at <br>payment|least one<br>within. . .|Total a<br>paid wi|mount<br>thin. . .|Propor<br>bala<br>paid wi|tion of<br>nce<br>thin. . .|
|---|---|---|---|---|---|---|
||1 month<br>(1)|9 months<br>(2)|1 month<br>(3)|9 months<br>(4)|1 month<br>(5)|9 months<br>(6)|
|**_Panel A: Spillovers o_**|**_n compound_**|**_s eligible for _**|**_disconnecti_**|**_on_**|||
|Coefcient|0.010|-0.020|-0.424|-1.721|0.019|0.008|
||(0.023)|(0.039)|(1.353)|(3.924)|(0.025)|(0.027)|
||r0.681s|r0.610s|r0.754s|r0.662s|r0.449s|r0.760s|
|Control Mean|0.110|0.334|5.026|24.722|0.268|0.300|
|Observations|996|996|996|996|996|996|
|Number of Clusters|144|144|144|144|144|144|
|**_Panel B: Spillovers o_**|**_n compound_**|**_s not eligible _**|**_for discon_**|**_nection_**|||
|Coefcient|-0.015|-0.009|-0.340|0.303|-0.002|0.006|
||(0.023)|(0.029)|(0.723)|(3.617)|(0.025)|(0.026)|
||r0.507s|r0.752s|r0.639s|r0.933s|r0.924s|r0.815s|
|Control Mean|0.409|0.734|8.544|51.156|0.722|0.655|
|Observations|1930|1930|1930|1930|1930|1930|
|Number of Clusters|143|143|143|143|143|143|

_Notes_ . Clustered standard errors based on the level of randomization (street) in parentheses and associated p-value in brackets. *** p<0.01, ** p<0.05, * p<0.1. Panel A includes all compounds that were eligible for the enforcement intervention. The comparison is between compounds assigned to the control group in treatment clusters with all disconnection-eligible compounds residing in control clusters. Panel B includes all compounds that were not eligible for the disconnection intervention. The comparison is between disconnection-ineligible compounds in treatment clusters with all disconnection-ineligible compounds residing in control clusters. Time periods are benchmarked on the end date of the intervention (November 2018) and use data downloaded from the Nairobi Water billing data for December 2018 and September 2019 to estimate impacts 1 and 9 months after the intervention respectively. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated.

34
Table 7: Effect of Contract Enforcement on Owner and Tenant Outcomes

||N<br>(1)|Control<br>mean<br>(2)|Treatment<br>coefcient<br>(3)|Standard<br>error<br>(4)|_p_-value<br>(5)|
|---|---|---|---|---|---|
|**Water and Sanitation Access**||||||
|Compound has a piped water connection|600|0.916|-0.036|0.024|0.135|
|Main toilet facility is a pour-fush system in the compound|608|0.942|-0.014|0.019|0.471|
|Compound has a _working_ piped water connection|591|0.573|-0.033|0.041|0.423|
|Main source of water is piped water to compound|589|0.306|0.040|0.037|0.286|
|Piped water consumption (meter reading)|474|169.554|2.583|20.684|0.901|
|Amount household spent on water for all uses last month (US$)|334|6.617|0.664|1.005|0.509|
|Time spent fetching water in a week [1]|601|118.187|-17.569|21.682|0.418|
|Somewhat or very satisfed with main water source|608|0.443|0.004|0.040|0.924|
|**Property owner**||||||
|Index: Perceptions of service delivery fairness|570|-0.000|0.070|0.084|0.404|
|Index: Perceptions of service delivery quality|589|0.000|-0.016|0.079|0.840|
|Index: Relationship with tenants|371|-0.000|-0.043|0.105|0.680|
|**Tenant**||||||
|Index: Perceptions of service delivery fairness|357|0.000|0.030|0.107|0.779|
|Index: Perceptions of service delivery quality|402|0.000|0.086|0.101|0.395|
|Index: Psychological well-being|403|0.000|0.139|0.105|0.186|
|Index: Community activism|403|0.000|-0.084|0.101|0.411|
|Relationship with property owner (scale of 1 to 10)|403|8.266|0.232|0.241|0.337|

*** ** * _Notes_ . p<0.01, p<0.05, p<0.1. Sample includes all compounds that were included in the follow up survey: control and treatment compounds in enforcement-treatment clusters. Property owner and compound water outcomes are from the property owner survey. Tenant outcomes are from the tenant survey. Indices are computed following Anderson (2008), normalized by the control group. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated. [1] In minutes.

35
Table 8: Effect of Contract Enforcement on Rental Market Outcomes

||N|Control<br>mean|Treatment<br>coefcient|Standard<br>error|_p_-value|
|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|
|Total rent from compound last month (US$)|525|62.575|23.880**|10.127|0.019|
|Average monthly rent paid by tenants (US$)|395|33.011|-1.845|2.576|0.474|
|Does compound have rental dwellings|568|0.589|0.135***|0.038|0.000|
|Number of rental units in compound|566|3.290|0.381|0.377|0.312|
|Property owner increased rent in the last 6 months|371|0.018|0.036*|0.021|0.091|
|Paying tenants have moved out in last 6 months|364|0.697|-0.059|0.053|0.264|

*** ** * _Notes_ . p<0.01, p<0.05, p<0.1. Sample includes all compounds that were included in the follow up survey: control and treatment compounds in disconnection-treatment clusters. "Have you increased rents" and "Paying tenants have moved out" are estimated only on the sub-sample of compound property owners that report having tenants. All monetary amounts are in USD using an exchange rate of 100:1, unless otherwise stated.

36