from EVIDENCE to POLICY Learning what works for better programs and policies August 2019 INDIA: Can microloans increase toilet ownership and use? Access to safe sanitation prevents the spread of bacteria and business loans, were earmarked for toilet construction only in viruses that cause illnesses such as diarrhea, a leading cause of name with limited monitoring and no enforcement regarding child mortality and a contributor to stunting in children. With- their use, making it easy for households to use the funds for out access to a hygienic toilet, and the motivation to use one, other desired investments and expenditures. Despite this lack WATER AND SANITATION people usually defecate in the of enforcement, the evaluation found that the sanitation loans open, and fecal matter makes increased toilet ownership and reduced open defecation. its way into homes, food, Since the study took place in the context of the Govern- and drinking water sources. ment of India’s Swachh Bharat Mission, the microloans were In places such as rural India offered to families who were and were not eligible for the pro- where open defecation is very gram’s subsidy scheme. The study suggests that the new sanita- common, finding effective tion financing especially benefitted families that were ineligible and affordable approaches to for the subsidy. However, families that were eligible for the increase sanitation coverage subsidy also took the loans and to a large extent used them for is a major public health chal- toilet construction because they provided additional resources lenge. and/or provided bridge funding for toilet construction while Past efforts to eliminate families waited to get reimbursed by the government. For poli- open defecation have focused cymakers, these findings suggest microloans earmarked specifi- on offering subsidies to poor cally for sanitation can play an important role in helping gov- households for toilet con- ernments tackle the sanitation challenge, partly by using scarce struction along with other forms of outreach designed to shift resources more effectively to improve public health and partly social norms. However, for various reasons, many families do by complementing subsidy provision. Programs that facilitate not take advantage of public health subsidies and not everyone access to credit for sanitation can help families – both eligible in need is eligible for subsidies. Subsidies also tend to come as and ineligible for government subsidies – to invest in toilet reimbursements to incentivize toilet construction rather than construction. to cover its upfront costs, implying that lack of access to finance likely remains a key barrier even for those eligible for subsidy. Rural sanitation in India: As a result, access to safe sanitation remained a problem for India has a long-standing history of programs addressing open over hundreds of millions people in rural India as of 2014, the defecation in rural areas. Despite previous sanitation campaigns, year that the Government of India launched its Swachh Bharat data from the WHO/UNICEF Joint Monitoring Programme reveals Mission, the largest rural sanitation program that has ever been that in 2014, more than 400 million people in rural areas were implemented anywhere in the world. estimated to be defecating in the open, accounting for around 60 To shed light on how to improve access to safe sanitation percent of the world’s population practicing open defecation. Ac- in India, the World Bank’s Strategic Impact Evaluation Fund cording to the WHO, over 300,000 diarrheal death can be avoided supported a randomized control trial (2014-2018) to estimate annually if India was to become Open Defecation Free.* the extent to which microloans for toilet construction affected the construction and use of new toilets. The loans, which car- *V R Raman, Arundati Muralidharan, “Closing the loop in India’s sanitation cam- paign for public health gains” The Lancet, vol. 393, issue 10177(2019), 1184-1186 ried a lower interest rate than other available loans, such as Context Around 43 percent of households in rural India practiced open open defecation free by 2019, the program organizes education defecation in 2015, according to data from the World Health and communication activities on sanitation, meant to increase Organization and UNICEF. Lack of access to safe sanitation demand for private household toilets, and provides financial is even more pronounced in districts where this research took incentives to vulnerable groups to encourage the construction place, Latur and Nanded districts in the state of Maharash- of private household toilets. The financial incentive is a 12,000 tra. Only around 27 percent of study households had a pri- rupee (USD $170) subsidy for every new latrine, which is vate household toilet before the roll-out of the sanitation loan much less than the average cost of toilets constructed among program in 2014. Households in this context typically identify households in the study area (Rs. 25,000). To prevent misuse of financial cost and affordability as the key reason for not having funds, the subsidy follows a “remuneration-after-verification” a toilet: 83 percent of families that didn’t own a toilet said the model: households have to pay a large share of the cost of toilet reason was the cost. construction upfront and will receive the full amount of the In 2014, the Government of India launched an ambitious subsidy once local district authorities have verified the toilet has WATER AND SANITATION nationwide sanitation program called Swachh Bharat Mission, been constructed and is being used. or ‘Clean India’ Mission. With an objective of making India Evaluation Within this context, researchers designed a randomized evalua- coverage and therefore also studied impacts on subsidy uptake. tion to measure the impact of offering sanitation loans on toilet To measure these impacts, researchers used administrative construction and use. The research team partnered with a large data from the Swachh Bharat Mission, including toilet owner- microfinance institution to offer sanitation loans of up to Rs. ship and subsidy receipt on all households, and administrative 15,000 (USD $211). The average interest rate was 20% per data on loan take-up from the microfinance institution and year, which was a lower rate compared to most other loans of- the local credit bureau, as well as primary survey data collected fered by the microfinance institution, notably business loans, from a sample of microfinance clients in the 81 study areas. their most common loan product. The trial’s baseline survey round was completed in January The study took place in 81 communities (administrative 2015, and the follow-up survey was conducted in August- units called Gram Panchayats) in which the microfinance insti- September 2017, two and a half years after the microfinance tution was already working. Forty communities were randomly institution began offering the sanitation loans to its clients. selected to receive offers for the sanitation microloans, and the This survey data included detailed information on toilet own- remaining 41 were assigned to the control group. In the control ership and functionality observed by survey enumerators and communities, the microfinance institution remained active, self-reported data from households, as well as toilet usage and offering all types of loans other than the sanitation loan. The open defecation practices. To assess the impact of offering sani- government subsidy and accompanying awareness creation was tation loans on sanitation uptake and practices, researchers fo- offered in both experimental groups throughout the evaluation cused on a sample representative of all microfinance clients of period. the partnering institution. To understand the complementarity Researchers measured impacts on sanitation loan uptake, of the sanitation loan and the subsidy scheme, researchers fo- toilet construction, and actual toilet usage two and a half years cused on those households of particular interest to the subsidy after the offer of loans. The research team was also interested scheme – that is, those without a toilet at baseline - that could in understanding if alternative financing like the microloans be matched with the administrative data. could complement government subsidies to increase sanitation This policy note is based on “Labelled Loans, Credit Constraints and Sanitation Investments,” World Bank Policy Research Working Paper (2019) and “Can Micro- Credit Support Public Health Subsidy Programs?”World Bank Policy Research Working Paper (2019) Findings The sanitation microloans enabled more families were higher among households who were not eligible for to build toilets in their homes, increasing access to the subsidy. safe sanitation––particularly for families that didn’t own a toilet but weren’t eligible for the government Not all sanitation loans taken by client households subsidy. led to the construction of additional toilets. Two and a half years after intervention rollout, about 1 in 5 The study reveals that about half of the disbursed sanitation of the MFI client households had taken out the sanitation loans supported the construction of toilets that would oth- loan. On average this led to a 9-percentage point (22 per- erwise not have been built. Those sanitation loans that did cent) increase in toilet ownership across the board. not trigger new sanitation investments were likely used for When researchers com- a variety of purposes, including sanitation investments that pared the administrative households may have made anyway. data from the subsidy program to their sur- Households seemed to use the sanitation loan as vey data for households an alternative source of credit. without a toilet at the time of the baseline sur- Because researchers had access to credit bureau data and vey, they find that many administrative data from the microfinance institution, they client households classi- could check how sanitation loans affected overall borrow- fied as ineligible for sub- ing and overall investment. The data suggest that on av- sidies were just as vulnerable as those who were classified as erage, households took out the sanitation loan instead of eligible for subsidies. Thus, there were many households that other loans, not in addition to them. While the researchers were ineligible for the subsidy but that did not have had suf- could not detect adverse impacts on household expendi- ficient funds to construct a toilet on their own. Indeed the tures or business investments, future research will need to results suggest that the sanitation loan was more effective for investigate whether this kind of substitution of credit im- households that didn’t qualify for the subsidy. Their toilet proves overall welfare. ownership increased by 20 percentage points (85 percent), compared to a statistically insignificant 8 percentage point increase for households eligible for the subsidy. Families offered sanitation loans were also more likely to use toilets and less likely to practice open defecation. Improved sanitation can positively affect health only if households also change their behavior. People need to use the toilets and no longer defecate in the open. The survey data suggest that the sanitation loans increased the likeli- hood of finding a functional toilet by close to 10 percent- age points (26 percent) and decreased the likelihood that household members practiced open defecation by nearly 11 percentage points (18 percent). Again, estimated impacts Conclusion Although targeted subsidy programs are less costly than implemented in rural India had sizeable impacts on toilet providing sanitation facilities to the entire population, en- ownership and use among households deemed ineligible for WATER AND SANITATION suring they reach the people in need can be challenging. a government subsidy program and decreased the practice Governments reasonably want to prevent the misuse of sub- open defecation. It is important to note, however, that at sidy funds, but requiring people to pay costs upfront and get the time of the end line survey, nearly 60 percent of client reimbursed later could exclude families who lack access to households still remained without access to proper sanita- funding or who cannot bridge the gap between investment tion and practiced open defecation, despite the sanitation and reimbursement. loans and the government subsidy program. Whether and This research suggests credit for sanitation, even if just how financial products like sanitation loans and government labeled by name, can be an effective strategy to increase subsidies can be modified (separately and in combination) sanitation uptake and to reduce open defecation. It can to increase toilet coverage and use remains an important also complement other financing mechanisms like subsi- area for research. dies for vulnerable households. The sanitation microloans The Strategic Impact Evaluation Fund, part of the World Bank Group, supports and disseminates research evaluating the impact of development projects to help alleviate poverty. The goal is to collect and build empirical evidence that can help governments and development organizations design and implement the most appropriate and effective policies for better educational, health, and job opportunities for people in low and middle income countries. For more information about who we are and what we do, go to: http://www.worldbank.org/sief. The Evidence to Policy note series is produced by SIEF with generous support from the British government’s Department for International Development and the London-based Children’s Investment Fund Foundation (CIFF). THE WORLD BANK, STRATEGIC IMPACT EVALUATION FUND 1818 H STREET, NW, WASHINGTON, DC 20433