Augsburg, Britta Caeyers, Bet Giunti, Sara Malde, Bansi Smets, Susanna
Year of Publication:
IFS Working Papers No. W20/20
Making lumpy human capital investments is difficult, particularly since returns may accrue with a significant time lag. Lack of commitment impedes savings and diverts funds from intended investments. We draw on a cluster randomised controlled trial in rural India to provide the first evidence that labelled microcredit is effective in increasing take-up of a lumpy human capital investment, a safe toilet. Testing predictions from a theoretical model provides novel evidence that loan labels influence household borrowing and investment decisions. Not all loans are used for sanitation investments, suggesting that loan labels offer a soft commitment incentive.