Author:
Amr Khafagy is a recherch assistant at the University of Gloucestershire in the United Kindgom. Amr’s background is in financial economics, where he worked on the political economy of finance, financial regulations, cooperative economics, and the effect of the financial sector on income and wealth distribution, with experience in developing macroeconomic models and econometric analysis. His current main research interests include rural finance and agricultural productivity, financial markets and distribution, income inequality, and the political economy of the Middle East.
Amr jointed the Countryside and Community Research Institute (CCRI) in January 2019. He is working on the H2020 projects; SURE-Farm and SUFISA. Amr previously worked in microfinance in Egypt and India, where he was involved in designing and evaluating rural finance projects, and worked with a range of stakeholders, including farmers and rural households, government representatives/ministry officials, as well as central bank of Egypt and financial institutions.
Executive summary:
This paper proposes a model where the structure rather than the size of the financial sector explains its influence on income distribution. Because of information asymmetries, a financial sector dominated solely by profit‐maximizing financial intermediaries will increase income and wealth inequality as it gives preferential access to credit for high‐income agents, whereas a diversified inclusive financial sector with alternative models of finance, like cooperatives, will reduce the inequality gap. No full convergence in income distribution can be realized through finance only and there is still a need for redistribution policies. Accordingly, an objective function for cooperative financial institutions should define a desired pricing behaviour that can increase the income of members at a rate higher than the average growth rate of the economy.