Currently, most African-based digital lenders rely heavily on working capital in the context of efforts to stimulate the growth of their own businesses, but at the same time, MoneyFellows startup has been able to implement a practice that few fintech industry players on the mentioned continent can do, lend billions of Egyptian pounds with virtually no debt or balance sheet exposure.
During the pre-Series C round, the specified brand raised $13 million. This round was led by Casablanca-based Al Mada Ventures and DPI’s Nclude Fund. Now MoneyFellows claims, sustainably, that it is ready to make the shift from sustainable growth to regional expansion.
Partech Africa and CommerzVentures also participated in the mentioned round. As of now, the total amount of funding MoneyFellows has ever received is just over $60 million.
Startup founder and chief executive officer Ahmed Wadi said that, unlike fintech firms that spend cash on scaling, MoneyFellows has kept operations lean by digitizing one of the oldest financial systems in the world, which is the rotating savings and credit association (ROSCA). According to him, the mentioned brand managed to crack this model and achieve profitability. At the same time, he separately noted that doing this while lending out billions without relying on working capital is quite destructive in itself.
ROSCAs are informal saving groups where a fixed number of participants regularly contribute to a common fund that is paid out to one participant per cycle. These groups are common in emerging markets and have different names, for example, esusu or ajo in Nigeria, kameti or chit fund in India, and gam’eya in Egypt.
The mentioned case uses a simple functioning algorithm. For example, ten people contribute $1,000 per month each. One person receives all of the $10,000 each month. This cycle repeats until each participant in the process receives a payout. The highest rates of functioning of such groups are observed in trusted circles. At the same time, their offline nature limits access and scalability.
MoneyFellows was launched in 2016. The startup digitizes the mentioned model, opening access to a wider pool of users across Egypt. Through the MoneyFellows app, anyone can form or join ROSCA groups or circles. It is worth noting that similar models exist all over the world. In this case, the Pakistani Oraan or the British StepLadder can be mentioned as examples.
Instead of acting as a lender, MoneyFellows matches savers, usually last in line, and borrowers, typically first in line. The startup uses behavioral data, credit scores, and income tiers.
Using the mentioned approach allows MoneyFellows to scale without lending from its balance sheet. Ahmed Wadi stated that the startup only steps in when a ROSCA group has an unfilled slot. According to him, if a startup runs circles of 10 people each and only finds nine members for some, it steps in to fund the missing one. He tested the ROSCA model in the United Kingdom and Germany before launching in Egypt. According to him, instead of canceling the group, the startup funds one slot, which activates and monetizes the remaining nine.
In a typical lending business, a company has to borrow money from banks or other financial institutions to lend it out. In most cases, the implementation of this practice is associated with interest costs and default risk.
As part of the algorithm used by MoneyFellows, risk and funding are spread across its users, keeping the proportion of unfilled ROSCA slots under 10%. In this context, it is appropriate to mention that providers of Buy Now, Pay Later (BNPL) services and digital lenders often have full working capital exposure on their loan books.
Ahmed Wadi noted that currently, only 7%-8% of slots in active ROSCAs require MoneyFellows to step in with working capital.
The mentioned exposure may be low in percentage terms, but as the startup scales, it adds up. For this reason, MoneyFellows, which raised funding as a bridge to a much larger Series C round scheduled for next year, is also actively negotiating with local banks to secure working capital as part of its drive to accelerate the growth of circles.
The startup reported that it has managed to achieve profitability in Egypt. This adds MoneyFellows to the small group of African fintech startups operating in the black.
Since the launch of the platform in 2018, the number of users has increased to more than 8.5 million. At the last funding milestone, the corresponding figure was 4.5 million. Over the past two years, the average payout per user has doubled, from $453 to $906 with strong adoption among higher-income segments.
Ahmed Wadi stated that this model is naturally viral. According to him, if persons digitize the experience for two members of an online ROSCA, they often bring the other eight with them. He also stated that such organic growth is hard to beat. According to him, competitive borrowing rates have also helped accelerate adoption.
This year, MoneyFellows launched a card product that allows users to receive payouts, repay installments, and spend across a merchant network.
The startup also plans to introduce investment, payroll, insurance, and remittance products down the line. This is expected to allow MoneyFellows to compete with other Egyptian digital banks such as Telda, Khazna, and Lucky.
The next important frontier that the startup has yet to overcome is to repeat its success outside of Egypt. Ahmed Wadi first announced the mentioned ambitions in 2022. According to him, the expansion took longer than initially expected. He noted that in this case, the impact factor was the complexity of the model that the startup decided to refine before going regional.
Digitalization of ROSCA does not belong to the category of simple tasks, the implementation of which implies the need for minimal effort. The process of launching a savings or loan product is much less complicated. Ahmed Wadi stated that the digitalization of ROSCA includes elements such as building recommendation engines to match users to the right slots, balancing thousands of circles in real-time, and minimizing default and dropout risk. In this case, among other things, an important task is also to maintain user trust.
Besides, Ahmed Wadi stated that cracking the model took longer than originally anticipated. At the same time, he said, it was worth the time. He noted that most attempts to scale ROSCAs digitally, even by banks and telecommunications companies around the world, have failed. According to him, in this case, the reason for the negative result is due to an underestimation of the complexity of the underlying behavior.
By the end of the current year, MoneyFellows plans to launch its operations in Morocco. The startup is approaching the implementation of this plan, having almost a decade of experience refining its model in the fintech market, which is one of the largest in Africa, partnering with more than 350 local and regional entities. MoneyFellows aims to start a history of presence in the Moroccan market by having secured major partnerships and regulatory approvals. Most of the population of the mentioned country does not have access to banking services belonging to the traditional category. Morocco also has a regulator-friendly environment. Moreover, a strong informal savings culture has formed in this country, known locally as daret. Besides, MoneyFellows is betting that events like the 2030 FIFA World Cup will accelerate digital adoption in Morocco.
The startup is also currently considering expanding into other markets in Africa and South Asia with similar dynamics. Launching operations in more diverse markets will allow MoneyFellows to test the adaptability of the model in regions where informal finance is less culturally relevant or formal banking is more developed.
Omar Laalej, Managing Director at Al Mada Ventures, stated that ROSCAs are very old financial arrangements, with roots going back hundreds, if not thousands of years. It was also noted that AMV was impressed by the upgraded version of this business that MoneyFellows was able to build, having a positive impact on thousands of families in Egypt.
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