Labelled Loans, Credit Constraints and Sanitation Investments
Credit constraints are considered to be an important barrier hindering adoption of preventive health investments among low-income households in developing countries. However, it is not obvious whether, and the extent to which, the provision of labe...
| Main Authors: | , , , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/689371557249458846/Labelled-Loans-Credit-Constraints-and-Sanitation-Investments http://hdl.handle.net/10986/31670 |
| Summary: | Credit constraints are considered to be
an important barrier hindering adoption of preventive health
investments among low-income households in developing
countries. However, it is not obvious whether, and the
extent to which, the provision of labelled micro-credit --
where the loan is linked to the investment only through its
label -- will boost human capital investments, particularly
when it is characterised by other attractive attributes,
such as a lower interest rate. This paper studies a cluster
randomised controlled trial of a sanitation micro-credit
program in rural India, which made available lower interest
loans for sanitation. The loans were linked with sanitation
through their name only. The loans were not bundled with any
toilet, and loan use was weakly monitored, but not enforced.
Hence it is not directly obvious that the loan should boost
sanitation investments. A simple theoretical framework
indicates that the intervention could increase sanitation
ownership through three channels -- relaxation of credit
constraints, salience of the loan label, or the lower
interest rate. The presented empirical evidence, combined
with model predictions, allow to conclude that the loan
label -- which to date has not received much attention in
the literature -- significantly impacts households borrowing
and investment behaviour. Labelling loans is thus a viable
strategy to improve uptake of lumpy preventive health investments. |
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