Money Fellows, an Egyptian fintech digitizing money circles, raises $31 million • TechCrunch

Egyptian fintech Money Fellows has raised $31 million in what it describes as the first close of its Series B investment. The round, which the startup expects to top up in the coming months, was led by CommerzVentures, Middle East Venture Partners (MEVP) and Arzan Venture Capital.

Other participating investors include Partech, Sawari Ventures, Invenfin, National Investment Company (NIC), 4DX Ventures and P1Ventures. Money Fellows has raised $37 million in total funding since its inception.

Money Fellows’ premise is the digitization of money circles or what is known as the Rotating Savings and Credit Association (ROSCA), a system where a group of people agree to contribute money for a specific period, thereby saving and borrowing together.

ROSCAs, which Money Fellows CEO Ahmed Wadi says are a $700 billion opportunity globally, are quite popular in over 90 emerging and developing markets with several names: Esusu or ajo in Nigeria, Kameti or chit fund in India and Gameya in Egypt. But it was not in any of these countries that Wadi first tested Money Fellows, it was in Germany, where he lived at the time. There, Wadi found it difficult to access financial services because he lacked a credit history. He believed that by replicating the gameya system in the European nation, he could provide an alternative funding system for people like him. However, adoption was not significant there nor in Britain, which was his next stop.

“Germany didn’t have this culture and at one point it felt like it made sense to go to the UK where they have Asian, African and Arab communities that traditionally use this model,” Wadi said. “But we found that people didn’t need it because they had an advanced financial system.”

On the other hand, Egypt has a working ROSCA system and Wadi, who is from the country, chose it as his third attempt in 2017. He launched the platform a year later.

Here’s how ROSCAs work. Let’s say 10 people get together and agree to pay $1,000 monthly for ten months. At the end of each month, a member gets $10,000 and it continues to rotate until everyone receives the payout. This system works best with a tight knit group of friends or family because it can be risky when strangers are involved. However, this limits offline ROSCAs in that participants may find it difficult to access more capital. But with Money Fellows, people have a wider range of participants – each going through a credit assessment process – around Egypt, allowing them to form and join ROSCA groups through the app. Similar players globally include Pakistani fintech Oraan and UK-based StepLadder.

Money Fellows classifies its users as borrowers, savers or planners depending on where they are in a ROSCA cycle and when they receive a payout. It charges a one-time service fee of approximately 6% for users who select the early slots; the percentage decreases down the line and transitions to incentivized interest paid to users at the end of the cycle.

“People looking to borrow can find slots on our platform. People are also looking to save. So if you’re a number one slot, you’re a pure borrower, so we charge a fee. If you’re a number two slot, we charge you a little less. It decreases the more you are willing to wait until the end of that ROSCA, where we motivate users with one of the most attractive savings incentives in the country.”

Any fintech business that involves lending in one form or another has to deal with defaults. Money Fellows is no different. Its deliberate design also takes into account such cases, and has created commission and reserve requirements to ensure that customers continue to get paid even when other participants miss their targets. According to the CEO, Money Fellows sets aside reserves for each new ROSCA launched, and covers any defaults from these funds, in accordance with a provisioning plan.

“The good thing about ROSCAs versus consumer finance is that not everyone has the same credit exposure. So if the slot number five, for example when you get $10,000, you only need to pay back $5,000 because you’ve historically paid $500 in the last five months,” he said. “That is why we are more conservative. We don’t limit people to just amounts. We also limit them to specific slots because we know which slots have more or less risk. There is another beauty and how we control defaults using Rosco as a finance engine versus the typical consumer and microfinance model.”

Image credit: Financial scholarships

Fintech also includes a B2B game where it partners with different merchants in Egypt to sell their products on the app so customers can get discounts. Fintech generates a commission from the markup on these products in addition to charging fees in the ROSCAs. It plans to offer more financial services such as buy now, pay later, pension and cards, where the four-year-old fintech plans to pay intermediation fees.

Money Fellows has over 4.5. millions of registered users on its platform; but only 7% are monthly active users. The average payout ticket per user is around 23,000 EGPU ($1,100). The company, which bills itself as “one of the favorite financial apps for Egyptians,” claims to have experienced eight-fold year-over-year growth.

Wadi said Money Fellows’ plan with the funding is to accelerate its growth by diversifying its portfolio of services and expanding its product offerings across the B2C and B2B segments, as well as its geographic expansion across Africa and Asia. “To be honest, this model has yet to be cracked globally. It took so much time to develop our product and technology to ensure that ROSCAs were fully completed while getting the right mix of borrowers, savers and planners, stated the CEO. “This was our main focus for the last couple of years, so now it’s time to grow, and so a big part of what we’re growing is to aggressively grow or scale much faster than what we’ve done and hopefully try to replicate this in other markets.”

Speaking about the investment, Hangwi Muambadzi, a venture partner at CommerzVentures, said: “Revolving savings and credit unions have been deeply rooted in emerging markets around the world for centuries. It’s brilliant to see this new digital ROSCA-powered model [Money Fellows] emerging from Africa, creating a reliable model for delivering financial solutions and setting a new standard for using localized solutions to solve global opportunities.”