Moni: Pioneering Community Banking in Africa
A fascinating backstory and case for a Nigerian fintech startup that has hit 20% compounding month over month growth for the past two years.
Stay up to date on my weekly column covering Emerging Market trends, companies, and stories to keep on your radar, from the lens of a VC. By day I’m the General Partner of Predictive VC, investing in early-stage companies like Esusu, Pomelo, Huspy, and Moni across the U.S., Latin America, and EMEA.
An Overview
I first met Moni via my colleagues at 186 Ventures in Boston. They’d astutely managed to pick the company out of a crowded batch of seed stage YC companies.
Moni is a pioneering fintech startup providing innovative community banking services in Africa. The company has since raised $4 million to date from Y Combinator, 186 Ventures, Magic Fund, Predictive VC, Uncovered Fund, and others to transform the financial landscape of over 500 million underbanked consumers, merchants, and mobile money agents on the continent, and has grown 20% MoM over the past two years towards this mission.
Here are a few quick facts:
Merchants Onboarded: 36,000+ (20% MoM merchant growth)
Investors: Y Combinator, 186 Ventures, Magic Fund, Predictive VC, Uncovered Fund
Fundraising: Plans to raise Series A in early 2024
Recruiting: Now hiring engineering, sales, and growth
When I met Moni Co-Founders Femi Iromini and Adedapo “Dapo” Sobayo over coffee, I was struck by the implicit trust in their relationship. The two were like a married couple, filling in each other’s sentences with knowing glances throughout the conversation.
I knew there had to be a long history between them. Let’s unpack it.
It Started with a Fashion Magazine
Moni’s origins trace back to Obafemi Awolowo University in Nigeria, where the pair were undergraduates studying physics and economics, respectively. They collaborated on publishing two magazines, including one called JEANS, which became the most widely read magazine on campus. Many sleepless nights on the publication grind laid the foundation for their partnership.
Post-university, Femi and Dapo pursued careers in banking and fintech.
Dapo joined one of the largest banks in Nigeria, Zenith Bank, with over $24 billion in assets under management, before moving to a lending startup called Zedvance, where he developed lending products and risk management models revolving around credit scoring and identity verification. At Zedvance, he focused on two primary categories of consumers: private and public sector employees. While there, he launched one of Africa’s first lending apps fully integrated with federal government employee systems, yielding near instant, single to double digit digital loans.
Meanwhile, Femi worked in investment banking before catching the entrepreneurial bug, launching an edtech company called Lead360, designed to prepare African university students for professional life. He was then on the founding team for one of Nigeria’s early digital banks, Mintyn.
Femi subsequently joined the World Bank, where he developed a framework to finance education and sustainability in West Africa. While at the World Bank in 2019, he re-connected with Dapo — seven years after their undergraduate entrepreneurial endeavors.
The pair met over dinner to deliberate some of the systemic challenges they’d experienced in financial services. Femi asked Dapo, “If you could dedicate the next phase of your career to a specific area, what would it be?”
“Peer to peer lending,” Dapo responded. The seeds for Moni were planted.
Early Innings: An MVP Born Out of Necessity
The pair began to iterate on an initial wedge into the peer to peer lending market.
They had two demographics to solve for: the lender on one side, and the borrower on the other. However, they faced a dilemma: how to scale lender volume and generate meaningful economics without an institutional banking middleman, while simultaneously onboarding credible, high quality borrowers.
Via friends, they had an accessible network of possible lenders, but were still iterating on an experience and strategy for borrowers when COVID struck.
A family friend of Femi’s lost her job, and facing dire circumstances, decided to start her own mobile money agent business. Essentially, “mobile money agents” act as middlemen between cash lenders and borrowers, facilitating these transactions using payment accounts such as M-Pesa on their mobile phone. They generally build a loyal set of day-to-day customers within their local community and take a commission on transactions at between 0.5% to 1%.
Femi trusted her and fronted the cash to support her. The business quickly expanded from one to three locations in a matter of months. Given the growing liquidity needs for her business, Iromini agreed to provide additional funds.
At a certain point, however, Femi began to worry about how his funds were being used. While inquiring about the use of his capital, out of curiosity he asked about whether his friend knew of other agents facing this liquidity challenge.
Her response? “It’s normal for mobile money agents!” She then proceeded to introduce Iromini to several colleagues who were building similar businesses, including a lady named Eunice.
In December of 2020, Femi and Dapo drove almost seven hours to meet Eunice in a town called Shapati, on the outskirts of Lagos. They were shocked — almost every household in the town relied on mobile money agents.
The closest bank to the town was almost two hours away. When they arrived, there were five women waiting for them, and each was an agent. It was an “ahah!” moment for the pair. During the meeting, several people came by asking for a loan. However, because the five women didn’t have the funds readily accessible, they had to let the transactions go.
Right there and then, Eunice created a WhatsApp group between herself, Femi, Dapo, and a few potential borrowers. Femi and Dapo had not intended to provide any loans themselves
“Eunice and the borrowers were quite persuasive in their need for money that month.” - Dapo
Sensing an opportunity, Femi and Dapo agreed to make a loan on the spot, committing a $2,000 personal amount across the five borrowers, with an agreed upon interest rate.
They had no expectation this capital would be returned to them, but knew a worthwhile experiment when they saw one. The five borrowers agreed to repay the loan in seven days. It was a handshake agreement, based purely on trust.
Seven days later, the five borrowers reached out — all five paid the loans back with interest. However, they wanted to take out more! Femi and Dapo agreed.
This cycle happened for the next three months, with the borrowers agreeing to pay back at 7pm every Thursday. One day, one of the borrowers paid late by fifteen minutes, due to a supposed “network issue.” After his payment, Femi and Dapo immediately removed him from the WhatsApp group.
Signs of PMF: Validating With a Simple, No Code Solution
Here’s how Moni’s initial solution worked:
Dapo spun up a Google Form, which was shared with borrowers via a WhatsApp group to fill in personal and bank account details. The pair would discuss terms individually with each borrower, and send them details for a pooled bank account to repay their loans.
When a borrower paid late, he or she was removed from the WhatsApp group for several weeks. In that scenario, others in the group who knew the late borrower personally would reach out directly with a threat of further suspension.
Effectively, the idea for “crowdsourcing trust” was born; when it was time for a borrower to repay a loan, a member of the group who knew the borrower personally would ping them.
For the first four months, Moni’s operation was run entirely through WhatsApp and Google Forms, expanding from one to several clusters. Femi and Dapo personally facilitated over one thousand loans during this period, manually, from their savings.
Painpoints: A Banking Landscape Not Designed for SMBs
Femi and Dapo quickly learned that giving loans to self-employed people, at reasonable scale, was quite painful. In fact, most African banks refused to do it, because it was difficult to predict financial patterns of self-employed professionals.
As a result, micro businesses often refrained from visiting banks at all. Only around 9% of SMBs across Africa have been able to access bank financing over the past few years.
The pair found that, despite fast-growing demand for their system, their primary bank was extremely wary of providing a loan without collateral.
For African banks to provide loans, they depend on credit bureaus to underwrite them. The challenge with credit bureaus in Africa, however, is that the data is inaccurate. Because the data is so fragmented, even when banks do give out loans, they often do not update the data in credit bureaus to reflect the transaction.
Furthermore, limited data exists on individuals’ transaction history — there is generally no centralized ledger of personal transactions. Instead, this information is cobbled together across a variety of channels, which is particularly painful given a vast majority of these transactions are made in cash.
“Digital only solutions do not work in most parts of Africa – internet penetration is still too low, and cash is king.” - Femi
In fact, about 90% of transactions are still cash based. And about 10 to 15% of transactions are via smartphone — a segment being catered to by digital banking providers like Kuda.
Unlike in many developed countries, where credit scores meaningfully impact everyday life, in Africa, credit scoring is not top of mind for consumers.
As a result, Femi and Dapo had to solve for these data gaps in loan underwriting in order to develop a scalable solution. They didn’t need to develop an insanely complex system, rather, they just needed to collect and provide sufficient data for their initial set of mobile money agents to begin underwriting each other.
Uniquely, because each mobile money agent in a cluster knew each other personally, they already had more information than any bank on prospective borrowers — they knew where they lived, and they knew their family and friends. This social intelligence was difficult to quantify, but it was extremely powerful towards accountability. If someone defaulted, it impacted the credibility of their peers. And each agent was extremely conscious about that social credibility.
So how big is the mobile money agent market, exactly?
There are currently around 3 million mobile money agents across Africa, generating approximately $124 billion in transaction value each year. Dapo believes that Moni can achieve over $100 million in annual revenue in the next few years within this segment alone.
However, Moni’s larger vision is to serve Africa’s underbanked consumers. Of Africa’s total population of 1.2 billion people, around 50% of them are underbanked at the moment, equating to roughly 600 million potential consumers.
According to Dapo, most fintechs on the continent, such as Kuda, Branch, Carbon, and Tymebank are primarily focused on Africa’s middle class at the moment. However, Moni is positioned to solve for the largest underbanked segment, which requires a fundamentally community-driven approach.
This market is expected grow meaningfully within the next few years — not just within Africa, but around the world. Zooming out, the global community banking market is expected to grow to over $200 billion by 2027 at a 5.3% compound annual growth rate.
Scaling Up: Rapid Growth Via Word of Mouth
Word about Moni spread quickly.
In fact, the team has barely invested in marketing to date. Agents were naturally inviting other agents within their community, and the company quickly established a backlog of interest. Micro businesses also quickly began to adopt Moni, unlocking a vastly larger market — in Africa, over 80% of jobs are provided by small businesses, compared to around 46% in the United States.
The loans were changing lives. One agent mentioned he’d almost committed suicide until the moment where he was able to access a loan through the Moni pool and stabilize his business.
After an explosive period of 50% month over month growth in mid 2021, the team brought on several well-known African angel investors for a PreSeed funding round to building out key product functionality, including the ability for money agents within a cluster to contribute 16% of their lending principal amount to a shared pool of funds, on which they’re able to earn interest. With this functionality, when a member of the cluster defaulted, other agents in the cluster would be able to vote on whether to use the pooled amount to liquidate the loan.
With several banking partners in place, Moni also quickly added wallet infrastructure to assign accounts to agents and clusters, providing real-time insight into payment activity.
Agents then wanted savings functionality, for which Moni required — and obtained — a banking license with one of the largest banks by footprint in Africa, unlocking a powerful pan-African distribution channel.
And by 2022, Moni was positioned as an early mover in the digitization of lending amongst mobile money agents, small business owners, and consumers in western Africa.
Moni then attended Y Combinator, after which the founders closed a $3.5 million seed round from investors including 186 Ventures, Magic Fund, Predictive VC, Uncovered Fund, and more.
Moni ended 2022 with a 1,662% increase in revenue growth from 2021, a 99% loan repayment rate across 16,000 merchants, and 40 full-time employees. And as of Q3 2023, the company has onboarded over 36,000 merchants.
How does Moni make money?
Currently, Moni primarily generates revenue from interest earned on loans provided. As the company expands its community banking model, there will be opportunities to drive multi-channel revenue including commission on transaction fees, loyalty, and other premium services.
Big Vision: Community Banking for Merchants & Customers
Looking forward, Moni aspires to be the leading player in community banking across Africa by expanding vertically for merchants and their customers, and horizontally across multiple African countries, focusing particularly on French and English speaking regions.
Given the company’s lending wedge for merchants, the founders are particularly excited about opportunities to double down on forms of banking that do not require smartphones. Leveraging their initial wedge into merchant lending, Femi and Dapo are next focused on opportunities to create accounts for cash-based consumers interacting with their local merchants, effectively equipping local merchants across Africa with distributed and embedded banking infrastructure to act as community banks themselves.
By empowering merchants to provide loans, loyalty, and other financial services to consumers, Moni will play a proactively role in establishing many African consumers’ first financial accounts, above which Moni can then provide tailored financial products such as savings, staking, and investing.
Macro Outlook
At a macro level, I believe Moni’s ambitions to service the African consumer may be bolstered by inflationary tailwinds — in October 2023, Nigeria’s annual inflation rate rose to 27.3%, its highest in 18 years. This is largely due to a drop in foreign dollar inflows into Nigeria for oil, which accounts for 90% of Nigeria’s export economy, as well as a major backlog of dollars owed by the central bank to local banks.
Given many corporations in Nigeria had previously purchased sizable dollar FX forwards, or contracts locking in dollars at a defined exchange rate, that are coming to term, local banks have been forced to provide liquidity without the support of the central bank. This has significantly depleted the circulating supply of USD.
Currently, Nigeria has over $7 billion in FX forwards due.
Given an extremely weakened Naira, many Africans are seeking financial stability via other mediums such as stablecoins, a form of cryptocurrency pegged to international reserve currencies such as the US dollar. To address this demand, Moni also soon plans to enable consumers to access stablecoins via their accounts, just a stone’s throw away at their local community merchant.
“We think of it like convenience banking — we come to meet you, where you shop,” said Dapo.
Risks to Consider
In evaluating Moni’s position and potential in the community banking market, here are a few key risks to consider:
Macro / Currency: Continued Naira devaluation presents a general market risk for Moni’s agent, merchant, and consumer users, decreasing purchasing power and transaction volumes.
Liquidity: As Moni’s loan volume grows, the risk of a liquidity crisis increases in a scenario where the company may not be able to meet short-term financial obligations, potentially leading to systemic defaults.
Regulatory / Compliance: Increased lending volume will come with greater regulatory scrutiny and risk of crackdown by local and regional policymakers.
Competition: Larger lenders such as Kuda, Branch, Carbon, and Tymebank, or upstarts such as FairMoney (Nigeria), LulaLend (South Africa), and LipaLater (Kenya) may push further into the underbanked market.
Concurrently, Moni is prioritizing banking license partnerships to navigate the evolving regulatory landscape, innovation in areas such as stablecoin balance management towards providing savings stability, and debt partnerships to ensure a backlog of liquidity.
I believe there are several pan-African unicorns to be built in this space, and the eventual market leaders will be the teams that have proactively mitigated these risks.
The race is on.
Gearing Up for Growth in 2024
With foundations in place, Moni is preparing for growth heading into the new year. The company has key banking and regulatory partnerships established, along with a passionate, committed, and fast growing merchant customer base. Moni is now hiring for key technical and sales leaders.
“We've been able to develop a great culture as a company. The right leadership talent is major for us at the moment, especially in engineering and sales. If you’re looking to make an impact at a mission-driven company primed to impact the underbanked population across Africa, reach out!” - Dapo
To capitalize on its merchant growth, Moni is gearing up for a Series A in early 2024.
Thanks Femi and Dapo for sharing your story!
Disclaimer: All information contained on Emerging Market VC is not intended as, and shall not be understood or construed as, financial advice. All views and ideas expressed are my own.
Disclaimer: I am an institutional investor in Moni via Predictive VC.
Great way of prototyping social trust pods. Loved this deep dive Kevin!