Checking overdrafts are an expensive yet common way for bank account holders to obtain short-term credit when faced with unexpected shocks. In developing countries, one common shock that many salaried workers face is late or erratic payment from their employer. We use administrative data from a rural bank in Ghana to show that receiving a late salary payment increases the likelihood of taking an overdraft by 10 percent. Past overdrafts are also associated with future overdrafts, suggesting that late payment exacerbates the risk of trapping workers in a costly debt cycle.
This work is part of the Closing the Gender Gap in Africa: evaluating new policies and programmes for women’s economic empowerment programme
Buehren, Niklas, Virginia Ceretti, Ervin Dervisevic, Markus Goldstein, Leora Klapper, Tricia Koroknay-Palicz, and Simone Schaner. 2018. “Salary Delays and Overdrafts in Rural Ghana.” AEA Papers and Proceedings, 108: 449-52.
Salary Delays and Overdrafts in Rural Ghana