Emerging financial technologies generate plenty of buzz, from DeFi to embedded finance and beyond. But all that noise can sometimes obscure a simple truth: some very old school financial tools can offer opportunities to deliver new fintech innovations.

A good example is MoneyFellows, a 500 portfolio company based in Cairo, Egypt. MoneyFellows has digitized what’s known locally as “gameya” or money circle. It’s a type of informal peer-to-peer finance where a small group—often family, friends or co-workers—contribute regularly to a common fund (usually monthly), with members each taking turns withdrawing a lump sum at set intervals. In India, it’s called a chit fund, while in the U.S., the term is rotating credit and savings association, or ROSCA.

For Egyptians lacking access to formal banking services, money circles have long offered an opportunity to secure small loans in a way that’s permissible under Islamic law. But they also have limitations. They’re typically confined to a small group in a common location, and the process relies on trust. Ahmed Wadi, MoneyFellows’ founder, saw promise in digitizing the experience and circumventing some of these obstacles.

Since its inception in 2015, more than 3.5 million users have signed up to MoneyFellows, says Wadi, who hopes to add over a million new paying customers in 2022. That uptake comes as the platform has evolved over the years. Initially, MoneyFellows wasn’t far removed from a traditional money circle, with most activity led by small private groups. Today, almost all transactions are done between groups of strangers across Egypt, with withdrawal amounts that can reach over $5,000. “It’s a big network of trusted participants,” says Wadi.

The company was able to achieve that thanks to its credit scoring model, which takes into account employment history and proof of bill payments, among other things. Users must also sign a legally binding contract, subjecting them to late fees. “We now have a lot more data, we have a lot more behavior,” says Wadi. The data allows MoneyFellows to predict user behavior and accordingly set limits on borrowing, as well as determine which payout slots they can access. Earlier slots in the cycle tend to have a higher risk of default, and new users usually can’t access them unless they choose a lower payout. As people build their scores they can get better slots and borrow higher amounts.

“We’re more than just a digital ROSCA,” says Wadi. “Today, we’re mainly using ROSCA as a financial engine instead.” That means MoneyFellows is adding new layers to the concept of money circle. For instance, rather than simply ask how much users want to borrow, MoneyFellows asks what they’re planning to do with the funds. If someone wants to buy a laptop, it will recommend products and link to merchants to facilitate the purchase. That, says Wadi, makes the service similar to a Buy Now, Pay Later tool. Going forward, the company is preparing to launch more services atop its platform, such as prepaid cards.

Today, the typical MoneyFellows customer is between ages 27 to 35, with 40% women and 60% men. They use the platform for different reasons: to fund a wedding, buy a car, cover emergency costs or simply to save. Part of the appeal is affordability, with users paying fees that average around 4% of the total borrowed annually–below the interest rate for a typical personal loan from a local bank.

So far, Wadi has focused on the Egyptian market. With over 100 million people, it is the largest in the Middle East, offering ample opportunity for fintech adoption. Almost 50% of the country’s population is unbanked, according to a 2021 fintech report from Egypt’s central bank. “We wanted to ensure that we’re dominating this market,” says Wadi.

In 2021 the government passed new laws governing fintech that allow the central bank to award licenses, which industry players predict will unleash an investment surge in the sector. For its part, MoneyFellows has received permission from the central bank to operate through a regulatory sandbox, which is helping it shape rules governing digital money circles.

Wadi was an early mover in the Middle East. A computer engineer by training, he came upon the idea while living in Germany in 2014. At the time he needed money to finance his wedding, but his credit score prevented him from accessing a loan–so he formed a money circle.

Abroad, Wadi struggled to find enough people to join, but not in Egypt where friends and family lent him the funds. Still, he had to wire his installments through Western Union, racking up fees, and the whole affair was a bit disorganized due to being remote. Wadi started thinking about ways to improve money circles. Back in Egypt, he participated in a fintech accelerator program run by Barclays Egypt, and in 2018 raised seed funding from 500 Global and other investors.

To attract early users, Wadi targeted managers of offline money circles, who traditionally organize groups and oversee cash collections and payouts. MoneyFellows incentivized them to join its platform and bring their networks, a useful acquisition strategy.

The pandemic gave the company a boost, as it became harder for people to conduct offline circles at a time when many were looking to borrow because of financial hardship. As MoneyFellows gains traction, Wadi sees opportunities to keep pushing the money circle concept beyond its time-honored roots. “The ultimate goal is to really have a fully-fledged financial solution powered by collaboration,” he says. “Something more social, something affordable.”

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Egypt’s MoneyFellows Uses An Old School Lending Tool to Drive Fintech Innovation