Why we invested in Money Fellows?
by Jad El Boustani and Germine Bouchnack
Why we invested in Money Fellows: For the Billions of unbanked individuals in cash-based societies
With the disruption and digitization of numerous sectors over the past few years, the financial industry was not spared from such transformative shifts. Traditional financing solutions sought to keep up, while Fintech companies were quick to tailor their offerings to cater for the often-overlooked unbanked segment in predominantly cash-based societies. These individuals seek secure, convenient, and affordable tech alternatives that solve for the challenges they normally face when dealing with traditional financial institutions.
At MEVP, we are committed to investing in talented entrepreneurs leveraging technology to improve lives. With financial inclusion at the forefront, we were intrigued by Money Fellows’ inspiring tech-driven platform spearheading access to financial services. . Founded in 2017, Money Fellows is a mobile-based platform that digitizes money circles or Rotating Savings and Credit Associations (ROSCAs) that are widely known as “Gameya” in Egypt and other Arab countries. By digitizing ROSCAs, used by both banked and unbanked users, Money Fellows enables people to pool money more efficiently and securely by leveraging the ROSCAs’ model inherently low-fraud potential
Having followed the company since its launch, we have witnessed their success at cracking such a difficult model. With limited capital, Money Fellows grew its user base to hundreds of thousands of monthly active users with a solid 8x YoY growth, proving their ability to provide a highly recurring financing option to a largely untapped and underbanked population at a low cost of capital.
How do ROSCAs work?
Take for example, a group of friends, family members or colleagues who create a pool of funds, where each member contributes a monthly fixed installment for a defined number of months. Each of the members can take the entire pool as a payout at their respective designated month. The entire circle ends when every member receives their payout.
By utilizing this system, participants receive their savings more efficiently than they would otherwise, except for the last person to be drawn. They receive it in the same timeframe if they would have saved on their own.
Additionally, ROSCAs are inherently low risk financing models, meaning they repel fraudulent consumers. For example, assuming a member joins a nine-member circle, on average she/he will be fifth in the line to receive a payout. It means the member makes five contributions before he or she receives the desired payout, thus, reducing the member’s probability of default.
The model has a ripple effect, with people investing in more than one money circle at a time and rejoining new circles as soon as they receive their payouts. Such models and the team powering them, prompted us to invest. Why? Because we believe Money Fellows is on track to become the go-to platform for financial services in emerging markets, for the following reasons:
Their presence in Egypt — a cash-driven economy comprised of a largely underbanked population with high cultural affinity to ROSCAs
Egypt’s financial sector is ripe for disruption. It is estimated that 70% of transactions are still cash-based and over 66% of adults are unbanked. Moreover, only 5% of Egypt’s population has access to formal credit, while 45% borrow informally mostly from friends and family. To overcome limited credit access, high interest rates, and lengthy processes, there are 30M+ estimated offline ROSCA users accounting for a $3B+ estimated market size. Overall, the Egyptian informal lending has an estimated USD 18B+ market size, which increases to USD 30B+, when accounting for cross-selling across other financial services, such as bill payments, money transfers and installments.
First mover and regional market leader in digitizing a large offline market led by a resilient team with a solid tech background
Money Fellows is the first to offer next generation digital ROSCAs globally. Driven by a strong tech-oriented founder and leadership team that is well-aware of the local market dynamics and pain points. Their secure and convenient alternative to traditional finance is more social, culturally favorable, affordable, and incentivizing. The company is evolving into a fully-fledged financial services provider that covers the entire spectrum of financial needs of a largely untapped underbanked population. Users can effectively manage and plan their financial obligations and achieve their financial goals through the platform.
Their globally validated model for saving and borrowing money, has a high cultural affinity across emerging economies
The global market is largely untapped and ripe for disruption with 2.4 billion people using money circles through traditional channels. ROSCAs are ingrained in the Arab, African, South American and Asian societies. Serving as both a saving and credit instrument, they most often are the first financial tool adopted by individuals with substantial amounts of money rotating in them.
In addition, the ROSCA model is more prevalent than other formal financial institutions in low-medium income consumer segments, due to its simplicity and informal understanding among members of the community. It offers a cheaper source of finance with a flexible process and low fraud potential. They also serve as a great instrument to save money due to the absence and complexity of formal savings institutions in rural communities.
Strong value propositions based on global standards
When assessing where Money Fellows stands with regards to other similar players in the regional and global markets, a few interesting findings emerged.
- Money Fellows has a customer-centric experience, with products covering the entire spectrum of users’ needs. This results in high user adoption, engagement, and retention, due to the financial planning, budgeting, borrowing, saving, and spending features.
- The company’s digital ROSCA offering has several advantages over its offline comparatives. Money Fellows’ platform enables money circles to scale and not be limited to a specific group of people or geographic area, in addition, it provides users with the flexibility to pick their pay-out month. Risks are kept at bay, at the borrower, group and portfolio levels, minimizing the default risk faced by these ROSCAs. Storage of funds is not required since the money goes straight from one person’s pocket into another. And the more users participate in digital money circles, payment histories are built enabling users’ access to additional financial services in the future.
- Higher cultural affinity, compared to other players, translates into less time, effort and money spent on customer education, thus lower customer acquisition cost and higher customer adoption rate. Money Fellows is one of the few fintech players that currently extends multiple financial offerings to its consumers, including alternative offerings to salary advance/payroll/merchant BNPL/consumer finance at 2.5–6 times lower interest rates than comparatives. The company’s diversified lending/saving offering cover a wide range of amounts and tenors, catering to a wider customer-base than other players.
Our investment in Money Fellows is driven by our strong belief in inclusive financing that is tailored to the needs of the mass population across the region. With its exponential trajectory, Money Fellows is spearheading the alternative finance sector’s positive shift through its wide array of financial services.