Money Fellows, an Egyptian fintech digitizing money cycles, raises $31 million in funding • TechCrunch

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

Other participating investors are 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 to digitize money cycles or what is commonly known as Rotating Savings and Credit Associations (ROSCAs), a system where a group of people agree to contribute money for a certain period by saving and borrowing together.

ROSCAs, which Money Fellows CEO Ahmed Wadi says is a $700 billion opportunity globally, are quite popular in more than 90 emerging and developing markets under various 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 tried Money Fellows, it was in Germany, where he was living at the time. There, Wadi struggled to access financial services because he had no credit history. He thought by replicating the gameya system in the European nation, he could provide an alternative funding system for people like him. However, the adoption was not significant there nor in the UK which was his next stop.

“Germany didn’t have that culture and at some point, it felt like it made sense to go to the UK, which has 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 ROSCA operating 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 ROSCs work. Let’s say 10 people get together and agree to pay $1,000 monthly for ten months. At the end of each month, one member receives $10,000 and continues to rotate until everyone has received their payment. This system works best with close friends or family because it can be dangerous 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 rating process – across Egypt, so they can form and join ROSCA groups through its app. Similar players globally include Pakistani fintech Oraan and UK-based StepLadder.

Money Fellows classifies its users as borrowers, savers or developers based on where they are in a ROSCA cycle and when they receive a payment. It charges a one-time service fee of around 6% to users who choose its first points. the rate is reduced down the line and turned into incentive interest paid to users at the end of the cycle.

“Those who want 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 net borrower, so we charge a fee. If you are the second slot, we charge you slightly less. It goes down the longer you’re willing to wait until the end of this ROSCA, where we’re incentivizing 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 have it no different. Its conscious design also factors in such cases and has made provisions and reserve requirements to ensure that clients continue to be paid even when other participants miss their targets. According to the CEO, Money Fellows sets aside reserves for each new ROSCA launched and, under a provisioning scheme, covers any defaults from these funds.

“The good thing about ROSCAs versus consumer financing is that not everyone has the same credit report. So if your slot is 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’s why we’re more conservative. We don’t limit people to just amounts. We also limit them to specific slots because we know which slots are more or less risky. That’s another beauty and how we control defaults by using Rosco as a financial engine versus the typical consumer and microfinance model.”

Image Credits: Money Fellows

The fintech also includes a B2B game where it works with various merchants in Egypt to sell their products within the app so that its customers can get discounts. The fintech generates a commission from the markup on these products, in addition to charging fees to its ROSCAs. It plans to offer more financial services such as buy now pay later, pensions and cards, where the four-year-old fintech plans to do interbank fees.

Money Fellows has over 4.5. million registered users on its platform; however, only 7% are monthly active users. The average paying 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 seen 8x year-over-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 & B2B segments, as well as its geographic expansion into Africa and Asia. “To be honest, this model has not yet broken globally. It took a long time to develop our product and technology to ensure that ROSCAs were fully completed while using the right mix of borrowers, savers and planners, said the CEO. “That’s been our main focus for the last couple of years, so now is the time to grow, and so a big part of what we’re growing is to grow aggressively or scale much faster than what we’ve done and then hopefully try to to repeat it in other markets”.

Hangwi Muabadzi, venture partner at CommerzVentures, speaking about the investment, said: “Savings and credit exchanges have been deeply embedded in emerging markets around the world for centuries. Great to see this new digital model based on ROSCA [Money Fellows] are emerging from Africa, creating a trusted model for delivering financial solutions and setting a new standard for using local solutions to solve global opportunities.”

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