Egyptian fintech Money Fellows has raised $31 million in what it describes as the first closing of its Series B investment. The round, which the startup plans to complete 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.
The premise of Money Fellows is the digitization of money circles or what is commonly known as the Rotating Savings and Credit Association (ROSCA), a system in which a group of people agrees to contribute money for a specific period, thus saving and borrowing together.
ROSCAs, which Money Fellows CEO Ahmed Wadi says represent a $700 billion opportunity globally, are popular in more than 90 emerging and developing markets under several names: Esusu or ajo in Nigeria, Kameti or chit fund in India and Gameya in Egypt. But it wasn’t in any of these countries that Wadi first tested Money Fellows, it was in Germany, where he was living at the time. There, Wadi found it difficult to access financial services because he had no 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 or in the UK, which was her next step.
“Germany didn’t have that culture and at one point it made sense to go to the UK where they have Asian, African and Arab communities that traditionally use that 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, a native of the country, chose it as his third try 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 a month for ten months. At the end of each month, one member receives $10,000 and it keeps rolling until everyone receives their payout. This system works best with a group of friends or family, as it can be risky when strangers are involved. However, this limits offline ROSCAs as participants may struggle to access more capital. But with Money Fellows, people have a wider pool of participants — each going through a credit check process — around Egypt so they can form and join ROSCA groups through its app. Similar players around the world include Pakistani fintech Oraan and UK-based StepLadder.
Money Fellows categorizes its users into Borrowers, Savers, or Planners based on their position in a ROSCA cycle and when they receive payment. It charges a one-time service fee of around 6% to users who choose its top spots; the percentage decreases down the line and turns into incentive 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 are niche number two, we charge you a little less. This diminishes the longer you’re willing to wait for this ROSCA to end, where we incentivize users with one of the most attractive savings incentives in the country.
Any fintech business that involves loans in one form or another has to deal with defaults. Money Fellows has it no different. Its conscious design also takes such cases into account and has established provisioning and reserve requirements to ensure customers continue to get paid even when other participants miss their targets. According to the managing director, Money Fellows sets aside reserves for each new ROSCA launched and, in accordance with a provisioning schedule, covers any default in those funds.
“The good thing with ROSCAs versus consumer credit is that not everyone has the same exposure to credit. So if your slot number five, for example, when you get $10,000, you don’t you only have to pay back $5,000 because you’ve historically paid $500 in the last five months,” he said. “That’s why we’re more conservative. We also limit them to specific niches because we know which niches are more or less risky That’s another beauty and how we control defaults using Rosco as a financial engine versus the typical consumption and microfinance.
The fintech also includes a B2B game where it partners with various merchants in Egypt to sell their products in the app so that its customers can get discounts. The fintech generates a commission on the tagging of these products in addition to charging fees in its ROSCAs. It plans to offer more financial services such as buy now, pay later, retirement and cards, where the four-year-old fintech plans to make interchange fees.
Money Fellows has over 4.5. million users registered on its platform; however, only 7% are monthly active users. The average payout ticket per user is around 23,000 EGPU ($1,100). The company, which calls itself “one of Egyptians’ favorite financial apps,” claims to have seen 8x year-on-year growth.
Wadi said Money Fellows’ plan with the funding is to accelerate growth by diversifying its service portfolio and expanding its product offerings across the B2C and B2B segments, as well as its geographic expansion into Africa and Asia. “To be honest, this model has yet to be cracked on a global scale. It took so long to develop our product and technology to ensure that ROSCAs were fully completed while incorporating the right combination of ‘borrowers, savers and planners,’ the CEO said. ‘That was our main focus for the past two years, so now it’s time to grow, and so a lot of what we’re raising is to grow aggressively or scale much faster than what we’ve been doing and then hopefully try to replicate that in other markets.
Hangwi Muambadzi, a venture capital partner at CommerzVentures, speaking on the investment, said, “Rotating savings and loan associations have been deeply entrenched in emerging markets around the world for centuries. Great to see this new digital model driven by ROSCA [Money Fellows] emerging from Africa, creating a trusted model of providing financial solutions and setting a new standard for using localized solutions to solve global opportunities.