For years, Ahmed Wadi had seen his family and friends turn to close-knit circles – dubbed “gameya” in Egyptian Arabic dialect – when they needed urgent funds.
Gameyas are an informal type of peer-to-peer lending and borrowing network, in which a group of people contribute to a common fund over a period and take turns in withdrawing amounts at various points of time, similar to chit funds in India or rotating savings and credit associations in the US.
Mr Wadi, an Egyptian, sought a similar arrangement when he needed cash while studying for his masters degree in Germany but was unable to find one. However, he knew this would have been easy enough back in his native country.
“And that’s when I started to [think], why couldn’t we digitise these?” Mr Wadi says. While the concept of money circles is quite prevalent in Asia, the Middle East and parts of Africa, it has remained mainly informal and is rarely regulated or recognised by mainstream financial institutions.
“It is mainly done between people who know each other and trust each other and limited to people who live and work in an area,” Mr Wadi says. “Managing it is an extremely painful [task] since you need to have volunteers to run after people and collect money and ensure everyone pays on time. These were the pain points of the offline model.”
Mr Wadi started envisioning an online platform that would allow users to create, manage and track money circles online.
A computer engineer by profession, he soon set about working on a prototype for his new project, which he called MoneyFellows, and tried launching it in Germany. The model did not take off, though – mainly because people weren't familiar with money circles.
“[It] didn’t make sense to launch it there. The culture [in Germany] is totally against sharing financial information between friends and family. It is extremely difficult to introduce this concept to a new market, so we thought why not take it to a place where it is familiar?”
Mr Wadi then tried to launch it in the UK, where he thought there would be many communities that understood and practiced the ROSCA model, but ultimately decided to return to Egypt to launch MoneyFellows in 2016. There, the app aimed to connect people who were on the lookout for money circles but did not know each other.
Users wanting to join a circle on MoneyFellows need to complete basic identity verification if the payout is low. If the payout is higher, the users will need to provide more documents such as income verification and assets owned to the company, which will provide a credit score. “There are a lot of data that a user can provide to help his or her credit score,” says Mr Wadi.
MoneyFellows members can use their cards or mobile wallets to pay their dues to their circles. To ensure funds are paid, MoneyFellows’ website says all users will need to sign a legal contract.
“We assess them and their financial health … and based on that we allow them to join specific slots and maximum payouts,” Mr Wadi says.
Today, MoneyFellows has racked up more than 500,000 users, of which 200,000 are active. Active users refer to those who have completed their accreditation by providing all of the documents required and have joined money circles. Mr Wadi estimates that a “few hundred million Egyptian pounds” have rotated through the platform.
Once users improve their credit score, MoneyFellows will allow them access to circles with higher payouts. MoneyFellows earns revenue by charging a small fee when users withdraw loans.
“It varies for people wanting money immediately and those who want to wait and save. We charge people who are early on in the circle more than what we charge people who are at a later stage. We start at 6 per cent and then reduce over a long duration of the circle. That’s how we incentivise savers as well,” Mr Wadi says.
While data about money circles in the Middle East is hard to come by, mainly due to its informal nature, industry analysts say its potential is massive.
“The Middle East has vast potential for financial digitisation, as it benefits from robust digital penetration. The region ranks above the world average in terms of internet users per total population – driven by the UAE and Bahrain, where smartphone penetration is over 100 per cent,” says Abbas Basrai, partner and head of financial services at KPMG Lower Gulf.
“Digitisation can have tremendous benefits in terms of fostering a culture of financial inclusion and saving. There is a host of products available, some of which are yet to become mainstream in the Middle East.”
MoneyFellows’ revenue has been growing between 35 and 45 per cent month-on-month despite the fact that the concept of digital money circles is new to many Egyptians. Although Mr Wadi is not the first to try his hand at this globally, he was the first to successfully trial the concept regionally, he says.
“There was never a real benchmark, a player that has successfully digitised and took it to a scalable level,” he says. “Many have tried to launch similar ventures but failed. It is a thing that woke me up in the night.”
Following MoneyFellows, Cairo-based ElGameya and Saudi Arabia-based Circlys are also looking to tap into the sector.
Although such start-ups are helping to improve financial inclusion in the region, KPMG’s Mr Basrai cautions that there are headwinds such as “regulatory concerns and a dearth of common standards for exchanging data”.
Mr Wadi admits there have been regulatory challenges. "This model has been [largely] unregulated and … it is not comparable with other [regulated] consumer finance products or insurance products. We have been working with regulators and few banks and there are a lot of good signs."
Such challenges, though, are not deterring his efforts to expand MoneyFellows. In addition to Egypt, he says this model can work in other Arab countries considering there are communities present that are familiar with money circles. In particular, he sees potential for the model in Saudi Arabia and Iraq.
“Africa is a huge opportunity for us. Almost all African countries have this … but there are [minor differences] on how they do this. Asia, too, is a huge market but it is a much tougher market to enter. Africa and the GCC are the two regions we are looking to launch next,” Mr Wadi says.
To fuel MoneyFellows’ next phase of expansion, Mr Wadi raised $4 million (Dh14.6m) in a Series A round from Paris-based venture capital firm Partech and Egypt-based Sawari Ventures in June this year. The latest funding round comes a year after it raised $1m from 500 Startups, Dubai Angel Investors and the Phoenician Fund.
Mr Wadi says he will use the funding to expand the start-up’s team and support customer acquisition. He is planning to raise more funds to grow MoneyFellows in the future, but has no plans to raise capital this year.
For now, the entrepreneur is staying true to his aim to allow people to "access affordable capital and even save money mainly by digitising [the] ROSCA model”.
Q&A with Ahmed Wadi of MoneyFellows
What are some of the things you wished you had done differently?
I would have launched much earlier and analysed people’s feedback and iterated it. We waited until 2018 to launch the product because we wanted things to look perfect, which never happened. I would have [also] onboarded different people with various expertise and built an advisory board from day one.
Has Covid-19 affected your business in any way?
In terms of growth, we are positive. At the beginning of Covid-19, we had an increase of late payers. They were not defaulters but late payments in general. Now we are back to normal and things are becoming stable.
What skills have you learnt since starting the business?
There are many key lessons I learnt. FinTech companies usually take time to launch because [FinTech is a highly regulated space] they are waiting for approvals and partnerships with big banks. But my advice would be to launch and understand the product market fit. I would be close to my customers and want to hear what they say.
Your advice for struggling entrepreneurs?
Just reach product market fit – it is not easy but this is very important. Everything else is just noise. Lots of people get caught up in meetings with investors without proving some traction for their products. The number one thing is talking to customers and building a product.
Which quality do you think an entrepreneur needs to have?
Persistence is the key quality that I think an entrepreneur should have or build. It is tough, so if anyone does not have persistence [and does not] believe in the company before anyone else does then [it will not work].