Impact of Microfinance Loans on Sanitary Latrine Sales

Partner: VisionFund Cambodia
Location: Kampong Thom province, Cambodia
Sectors: Sanitation, finance
IDinsight service: Randomized evaluation
IDinsight contact: Neil Buddy Shah
Additional Resources: Policy brief, Journal abstract

The Problem

Improving sanitation is essential to decrease the massive health burden caused by diarrheal disease, which is responsible for more child deaths than HIV/AIDS, tuberculosis, and malaria combined. 2.5 billion people worldwide still lack improved sanitation, and this problem is particularly pronounced in rural Cambodia, where 80% of households lack hygienic sanitation (WHO/UNICEF Joint Report, 2012). It is estimated that poor rural sanitation accounts for 17% of all children under 5 deaths in Cambodia (WHO/UNICEF, 2008) and 448 million USD per year in lost productivity (Hutton et al, 2008).

Evidence Needs

Findings from IDinsight’s previous willingness to pay studies with iDE highlighted the possible role of cash constraints in determining a customer’s willingness to pay for a hygienic latrine. In order to test this hypothesis directly and inform iDE’s scale-up strategy, iDE partnered with VisionFund to offer loans (12-month declining balance group liability loans at 2.8% interest per month) in treatment villages. In control villages, iDE continued to implement their regular sales activities, without the offer of latrine financing.

IDinsight Service

IDinsight conducted a cluster randomized controlled trial to test the effectiveness of offering microfinance loans for latrines on latrine uptake.

We found that 12% of non-latrine owners purchased a latrine in the control group, while 50% of non-latrine owners purchased a latrine when offered a loan for the latrine (treatment group). This dramatic increase in latrine sales is accompanied by a 70% decrease in sales and marketing cost per latrine sold in treatment villages since the fixed costs of transportation and marketing time in each village is spread across a larger number of sales per village.

Based on these findings, iDE is in the process of scaling up microfinance loans for latrines in rural Cambodia.