Subsidizing sanitation: Updated evidence on ‘smart’ subsidies for latrines

A new review of evidence provides updated insights and recommendations for area-wide sanitation programs.

This blog post is based on a desk review and policy brief prepared by IDinsight and Tetra Tech under USAID’s Water, Sanitation, and Hygiene Partnerships and Learning for Sustainability (WASHPaLS #2) activity.

In the last few decades, people’s access to sanitation has significantly increased worldwide, with nearly 2.4 billion people gaining access to basic and safely managed sanitation services (World Bank 2022). Yet many countries are still off-track to meet their SDG goals of clean water and sanitation for all: 1.7 billion people still lack basic sanitation, especially in rural areas and low and middle-income countries. To reach SDG targets by 2030, we need to improve access to sanitation by using proven approaches and tailor their implementation to meet local needs. 

While initially controversial, “smart” subsidies for latrines can make an important contribution to achieving universal sanitation coverage, especially for economically disadvantaged and vulnerable households.

Subsidies: A mixed history

Subsidies have a controversial history. Decades ago, providing hardware directly to households was a popular approach to promote sanitation, but it fell out of favor in the early 2000s because it was expensive and results were underwhelming – programs failed to generate demand, distorted local markets, and undercut other approaches. This led WASH implementers and advocates to move away from subsidies and towards programs that facilitated demand, for example, through behavior change-focused sanitation programs  (e.g., community-led total sanitation (CLTS) and market-based sanitation (MBS)).

In recent years, subsidies have had a resurgence.  New “smart” subsidies attempt to side-step previous pitfalls by restricting eligibility criteria to a portion of households most in need, using a robust targeting approach to identify them. This can help avoid market distortion. In addition, “smart” subsidies are disseminated through vouchers and rebates rather than directly providing households with latrines or other hardware. This has helped stimulate demand for improved sanitation facilities and change behavior while also supporting, rather than distorting, the local sanitation market. 

To more deeply understand how “smart” subsidies are most effectively designed and implemented, IDinsight and Tetra Tech under USAID’s Water, Sanitation, and Hygiene Partnerships and Learning for Sustainability 2 (WASHPaLS #2) activity published a desk review pulling from the current evidence and highlighting persisting questions.

How can implementers and governments committed to improving sanitation incorporate “smart” subsidies into their approach?

The review seeks, specifically, to understand how smart subsidies can support vulnerable households in achieving area-wide sanitation outcomes.  This desk review unpacks the evidence on outstanding questions including: timing for implementing these smart subsidies, targeting recipients, combining subsidies with other interventions, pricing, delivery mechanisms, and how to support people to overcome financial and non-financial barriers to using latrines.

Subsidy Timing and Integration

When should subsidies be introduced, and with what other interventions? 

There is no universal approach to timing implementers’ introduction of subsidies. Rather, implementers have often based the introduction of subsidies on different milestones. For example: after or before the attainment of Open Defecation Free (ODF) status (measured at the community or higher geographic level), based on basic latrine access coverage levels in a community or higher geographic level, and concurrently with another sanitation intervention.

There are two main approaches: after other sanitation programming is implemented and simultaneously with other sanitation programming.

Sequentially – Subsidies after other interventions 

The first is to introduce subsidies after “enough” people in a given area already have a latrine and when the community passes some level of latrine coverage. Then, those who truly could not afford to build or purchase one would be targeted to receive subsidies. The latrine coverage level can be determined by either: 1) Achieving ODF status, where the majority of households have stopped openly defecating and at least constructed an unimproved¹ latrine; or 2) Clearing some threshold of even higher-quality latrine coverage (i.e., improved² latrine or higher). For example, the current Ethiopian National Sanitation Subsidy Protocol stipulates that subsidies should be introduced in woredas having at least 50 percent private household coverage of improved sanitation facilities. These thresholds are reached by first implementing behavior change programming such as CLTS and/or MBS to boost latrine demand and ownership up to a certain level. Then, households facing genuine financial constraints can be targeted by a subsidy program to either purchase or upgrade their latrines. 

Some reasons for adopting this approach include ensuring communities are committed to sanitation behavior change and theoretically minimizing market distortions by first meeting latent demand for latrines.

Simultaneously – Subsidies alongside other interventions 

The other approach is to introduce subsidies simultaneously with other programming approaches, which can happen when sanitation coverage levels are relatively low. This is beneficial from an equity perspective. In past experiences implementing CLTS programming, those who are most vulnerable may have suffered unfairly to construct or purchase a toilet, where there is peer pressure to fulfill the ODF target (House, Cavill, and Ferron 2017). From a sustainability perspective, subsidizing a higher-quality toilet can mitigate the risk of households reverting to open defecation (OD) even after communities reach ODF status due to collapse of low-quality latrines. Integrating subsidies with other programming allows households to potentially leapfrog rungs of the sanitation ladder– moving from open defecation to durable and aspirational toilets. 

What does the evidence say? There are limited rigorous studies that assess the question of whether concurrent vs. sequential timing of subsidies with other interventions is better. Overall, the evidence suggests that the integration of subsidies with other types of sanitation interventions has led to an increase in latrine uptake among the targeted group. For example, studies in India (Pattanayak et al. 2009), Bangladesh (Guiteras, Levinsohn, and Mobarak 2015), and Laos (Cameron et al. 2021) found that subsidies introduced alongside CLTS and other behavior change programming significantly increased latrine ownership rates. 

In addition, there is some tentative causal evidence from Cambodia (Hoo et al. 2022) and Bangladesh (Guiteras, Levinsohn, and Mobarak 2015), which shows that introducing subsidies at the same time as other demand-boosting interventions may yield positive, if modest, spillover effects., even when baseline coverage is relatively low. 

All in all, more evidence is required to conclude that combining targeted subsidies with other interventions will increase subsidy uptake and yield positive spillover effects. As the current evidence base on integration is largely Asia-focused, future research can expand understanding by generating knowledge in this area in an African context. 

IDinsight, as part of the WASHPaLS #2 consortium, is currently conducting a study in Ethiopia in partnership with iDE to add to this literature. We are conducting an impact evaluation to assess the direct and spillover effects of poverty-targeted latrine subsidies. This research is intended to inform the Ethiopian Federal Ministry of Health’s national sanitation subsidy guidelines.

Elements of Design

Vouchers or Rebates?

Vouchers and rebates are among the most common delivery mechanisms for smart subsidies. Unlike direct hardware handouts, vouchers and rebates do not treat beneficiaries as passive recipients of handouts. Rather, they are empowered to be participating agents in the marketplace, with the ability to evaluate different models and services and, in principle, would be able to choose those that best meet their needs. Moreover, vouchers and rebates encourage the use of local market actors and can help grow local markets by engaging private actors and stimulating demand among households. This can positively impact the short- and long-term viability of sanitation enterprises, and their availability to other potential customers.

Compared to rebates, vouchers are more suitable for addressing financial challenges because they do not require households to pay upfront, but they usually have short validity periods that limit voucher redemption time. Rebates can put more strain on households, especially when they are conditional on the installation of both the latrine substructure and the possibly much more expensive superstructure components (e.g., walls and doors that enclose and provide privacy).

How long should subsidy validity periods last?

The validity period of subsidies may strongly impact their uptake and effectiveness. However, these timeframes are often decided based on programmatic and operational considerations rather than intended sanitation outcomes. 

The literature suggests that the validity periods of subsidies have varied widely, ranging from on the spot to about 18 months. While shorter periods may motivate households to act quickly and accelerate the achievement of open defecation-free outcomes, they may disadvantage poor and vulnerable households. Examples from some programs have shown that when the redemption window is too short, economically disadvantaged households may struggle to gather the necessary resources and cash in time– be it coordinating with household members to dig a pit or gathering enough money to pay the household share (Kohlitz et al. 2021). 

Ultimately, the relative merits of different validity periods remain a matter of debate. Currently, there is limited empirical evidence available, mostly descriptive rather than causal, and it often presents conflicting conclusions. Future research may explore the optimal time frame, accounting for budget constraints, and other factors affecting the length of validity periods. The scalability and cost-effectiveness of intensive follow-up and monitoring efforts to ensure high redemption rates also need further examination.

How do we determine the optimal subsidy amount? 

Many contextual factors influence subsidy value and uptake; as such, there is no one-size-fits-all answer to the question of what the optimal subsidy amount is for any particular implementation. 

Some evidence suggests that even small subsidies can achieve significant impact. For instance, Cameron et al. (2021) in Laos found that modest subsidies– amounting to just under 15 percent of the market price of a full toilet with a superstructure, boosted village-level improved sanitation coverage by 16 percentage points. 

Even economically disadvantaged households may be able to bear a significant part of the cost burden. During the Cambodia WaterSHED program, three households who received vouchers spent an additional USD 180 to USD 400 on materials for a brick superstructure, which was considerably more than the subsidized amount of USD 10–USD 20 (Kohlitz et al. 2021). SNV had similar results, where households spent an average of USD 159 on their latrine and superstructure—five to six times the subsidy value of USD 25.30–USD 31.50 (Kohlitz et al. 2021).

Smaller subsidy amounts may benefit potential program scale but also may negatively affect household subsidy uptake. Before implementing a large-scale subsidy program, conducting robust willingness to pay studies using revealed preference approaches such as using the Becker–DeGroot–Marschak auction method or other similar approaches is essential. These studies help draw out the empirical demand curve for various latrine products, informing decisions about the tradeoffs involved.

Who should receive subsidies? 

One of the most challenging tasks facing implementers of subsidy programs is identifying who should receive the subsidies. 

Two common methods used to measure poverty and determine subsidy eligibility are proxy means testing (PMT) and community-based targeting (CBT). PMT methods use a limited set of observable household characteristics or asset ownership variables to predict household income or consumption. This generates a score per household, with those ranked in the bottom quintile considered eligible. On the other hand, CBT involves targeting a subset of a community based on the input of trusted community members. 

PMT is more accurate at identifying economically disadvantaged households and reducing targeting errors (Schnitzer and Stoeffler 2021). However, CBT is better at considering local definitions and nuances of poverty and vulnerability (Alatas et al. 2012; Poulin et al. 2022). Although well-executed CBT is a highly effective measure for identifying economically disadvantaged and vulnerable households, it requires significant training and monitoring. This makes it difficult to implement at scale. Moreover, without the right type of community mobilization and solidarity (Trémolet, Kolsky, and Perez 2010), CBT processes are liable to be influenced by local politics, which can lead to targeting errors. Ultimately, the evidence does not clearly support one method over the other.

Within the WASH sector, many subsidy programs leverage government-run targeting methods from pre-existing anti-poverty programs (e.g. Cambodia’s ID Poor system or Ghana’s LEAP metrics). Using existing government-run poverty identification programs can be one of the more cost-effective options, but even when a national targeting system exists, high targeting errors may occur, highlighting a trade-off between accuracy and scalability. 

Few studies in the WASH sector have rigorously assessed targeting methods or reported targeting effectiveness or projected/actual inclusion and exclusion errors. Assessing several methods on accuracy and other program outcomes can provide policymakers with useful information on each method’s cost-effectiveness and equity implications. Lastly, there is an opportunity to explore and test secondary data sources such as geospatial, satellite images, mobile and social media data, etc., along with machine learning techniques. This could potentially improve poverty or vulnerability targeting at an area-wide scale.

Program Cost-Effectiveness

Are smart subsidy programs cost-effective?

While subsidy programs have shown to be effective at increasing access to basic sanitation among economically disadvantaged and vulnerable households, implementation costs are substantial. However, there is a lack of standardized and comprehensive reporting on the costs of smart subsidy programs. Few programs report cost data, and none use a standardized metric, making it difficult to assess the cost-effectiveness of subsidy programs or weigh different subsidy mechanisms or targeting methods. Having a coherent set of metrics for reporting the implementation costs would enable a systematic comparison of subsidy design elements. 

To address the gap in evidence, targeted subsidy programs and studies going forward should systematically collect and publish cost data. We propose using three metrics to help future sanitation policies and programs determine the best use of limited available resources to reach area-wide, sustained sanitation outcomes: 

• The cost per qualified household achieving basic sanitation access,
• The total program cost per community achieving a benchmark level of basic sanitation access, and 
• Leverage—the amount of household investment in latrines per dollar spent on a subsidy program. 

By tracking this data, we can make informed decisions on how to achieve basic sanitation access and improve the quality of life for communities.

Barriers to Program Uptake

What are the barriers that prevent a subsidy program from reaching the targeted households?

The most common constraint is a household’s financial liquidity. Affordability has less to do with the actual ability to pay than the ability to access funds within the subsidy’s redemption timeline. This is often difficult for economically disadvantaged households, who tend to have unpredictable cash flows and therefore lack the means to amass the lump sum needed to finance a latrine. 

Less well-understood are the many non-financial barriers that may inhibit households from taking advantage of subsidies. Economically disadvantaged households face a host of non-affordability barriers that can limit their ability to take up a subsidy offer. Barriers can include distance or inability to travel and inability to dig a pit for the latrine (Chambers 1983, WaterAid 2017). Additionally, households may simply not understand how vouchers or rebates work (Gorter et al. 2012), and/or may distrust the processes required to obtain the subsidy or the benefits promised (Awunyo-Akaba et al. 2016). These barriers are highly correlated and can be mutually reinforcing, forming “clusters of disadvantage” that trap vulnerable households due to the tendency of non-financial barriers to be under-perceived by implementers (WSSCC 2019).

In designing and implementing voucher and rebate programs, implementers should identify, account for, and take active measures to ease the barriers experienced by the households living in the most severe forms of poverty who are especially vulnerable so they can access and use the offered subsidy.

Scale and Sustainability

How do we make sure it lasts?

The financial costs linked to smart subsidy programs can be substantial and may present significant barriers to program initiation, continuation, and scale, especially if the long-term benefits of a program are uncertain. 

By design, targeted subsidies are a one-time intervention seeking to reduce the immediate financial constraints that prevent households from purchasing a latrine. However, while immediate uptake is important, implementers must prioritize supporting the long-term management of sanitation services so they are used. Even when households have used subsidies to construct improved latrines, they may face obstacles that hinder their long-term adoption and use. These barriers can stem from physical or environmental limitations or cultural, social, and behavioral norms. Left unaddressed, these barriers can undermine the long-term impact of subsidy programs. 

While it is impractical—if not impossible—to eliminate all barriers to long-term use, subsidy programs working within an AWS context can deploy a variety of strategies to mitigate their effect and improve sustainability. These strategies may include ensuring correct toilet installation and minimum standards of usability and hygiene; providing additional support to most vulnerable households on sustained maintenance, management, and use of sanitation facilities and access to sanitation services; and monitoring latrine usage and safe management over the long term, in addition to uptake.

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The table below summarizes a list of illustrative outstanding research questions that implementers and evaluators in the sanitation subsidy space may aim to address. 

Knowledge gaps and associated research questions

While sanitation subsidies are being reconsidered after a period of reduced popularity, there remain challenges and important unknowns in their design and implementation. Getting a subsidy program to work effectively is far from straightforward, as evidenced by the many trade-offs facing implementers at each stage of the program’s life cycle—from its design to targeting to implementation to uptake. The Desk Review uncovered key knowledge gaps and questions around when subsidies should be introduced within area-wide programming, who should receive subsidies, what programs can do to increase the chances of correctly identifying and including them, and how the subsidies should be designed to encourage uptake among the most vulnerable households and increase the likelihood of sustainable usage over time. Answering these questions is a critical next step to understanding how subsidies can be effectively leveraged within an area-wide framework to the objectives of equity and universal coverage.