Leading digital banking platforms in Africa generally originate from rapidly developing and populous nations such as Nigeria, South Africa, and Egypt. Yet, Affinity Africa, a newcomer from Ghana, aims to make its mark in this sector. The startup has secured $8 million in seed funding to broaden its range of financial services throughout Ghana, where mobile money serves as the primary means of financial transactions.
Even though mobile money has emerged as the preferred solution for financial dealings, the conventional banking industry in Ghana and the rest of Africa continues to see substantial profits. Following the pandemic, banks in Ghana have experienced growth, boasting an after-tax return on equity (RoE) that surpasses the global average.
However, these earnings are highly dependent on fees, and persistent issues such as elevated operational costs, extensive in-person documentation, and protracted onboarding processes have left millions without access to financial services.
Currently, fewer than 10% of businesses in Africa have access to credit, and over 60% of adults do not utilize formal financial services, according to World Bank statistics. This widening chasm has spurred a demand for digital banking solutions such as Affinity, which provide a more affordable and inclusive financial framework.
Since its inception last October, Affinity has welcomed over 50,000 customers, as reported by its founder and CEO Tarek Mouganie. Remarkably, 65% of its clients had never before accessed formal banking services, and more than 60% are women engaged in the informal economy.
So, why has it taken so long for a digital banking newcomer to achieve such success in Ghana? The country’s stringent banking regulations play a significant role. Unlike Nigeria, which allows digital banks to operate easily with microfinance licenses, such licenses are scarce, costly, and time-consuming to obtain in Ghana, presenting challenges for fintech companies.
“Ghana’s regulatory body is focused on consumer protection, particularly in deposit-taking institutions,” Mouganie explained to TechCrunch. “We needed to demonstrate robust risk management, reach break-even as a microfinance entity, and align our goals with the government’s mission to bank the unbanked. Our digital platform’s ability to minimize friction and reduce banking costs for individuals and micro, small, and medium enterprises (MSMEs) was ultimately persuasive.”
From Investment Banking to Fintech Disruptor
Mouganie hails from a Lebanese-Ghanaian family with deep roots, having studied in the U.K. where he earned both a bachelor’s and a doctoral degree before embarking on a career in academia and finance. He later served as a Director at Man Group, a global investment fund worth $160 billion, contributing to significant IPOs including Visa and Compartamos, Latin America’s largest microfinance organization.
Upon returning to Ghana a decade ago, Mouganie sought to address the critical issue of financial inclusion across Africa—a challenge frequently noted in global consulting reports.
“Statistics like Africa’s $331 billion credit deficit are still circulating,” he stated. “Little has changed. This fueled my determination to establish a comprehensive retail bank for MSMEs, akin to what institutions like Santander, Lloyds, or Chase Bank offer in Europe and the U.S.—customized for the majority in Africa.”
In 2020, he and a group of friends and family successfully raised $2 million to purchase a microfinance bank. This included proceeds from selling his home in London, he asserts. The institution, which acquired a savings and loans license—the first of its kind granted in over a decade—served as a pilot ground for Affinity’s current banking innovations.
By 2022, Affinity raised an additional $3 million in a pre-seed funding round to enhance its existing license. After months of discreet testing, the fintech officially launched its app last October following approval from the Bank of Ghana, the country’s central bank.
Targeting both individuals and micro-enterprises—often indistinct in Africa—Affinity provides users with free savings and checking accounts, devoid of transaction limits, while credit scoring begins automatically based on transaction history.
After a few months, Affinity offers credit lines with monthly interest rates ranging from 3% to 7%. The Accra-based fintech has disbursed over $15 million in loans across various products, with instant loans experiencing a month-over-month growth of 30% and a non-performing loan (NPL) rate of 3%.
A Hybrid Approach: Digital Banking with a Personal Touch
Customers also enjoy a variety of other banking services, including savings, payments, investments, and both bank and mobile money wallet transfers. Last month, 89% of deposit inflows, which have surged 54% month-over-month since the platform’s debut, were sourced from mobile money top-ups, while the other 11% stemmed from bank transfers.
Loans constitute more than 90% of Affinity’s revenue, with the remaining 10% derived from fees and commissions on services such as utility bill payments and internet transactions via USSD and the mobile app. According to Mouganie, its revenue has surged by 37% month-over-month over the past six months.
Similar to many digital banks across the continent, Affinity integrates online banking with offline interactions through an agent network. About 30 agents personally connect with small businesses, assisting with onboarding to the app and helping to mitigate trust issues for first-time digital banking users.
Of its 50,000 clientele, 26,000 were acquired through the agency network, while 24,000 registered via the app. Interestingly, 55% of customers obtained through agents have transitioned to using the app, demonstrating significant digital uptake post-onboarding.
“This transition has encouraged us to rethink our agency strategy—concentrating on utilizing agents for onboarding, initial guidance, and enhancing digital literacy to promote app uptake. We are eager to refine this hybrid growth strategy as we expand,” stated Mouganie.
Affinity’s $8 million seed funding round was spearheaded by European venture capital firms Grazia Equity (Germany) and BACKED VC (London), marking their inaugural investment in Africa. Additional investors include Enza Capital, Launch Africa, Renew Capital, Finca International, Attijariwafa Ventures, and Impact Assets, along with early backer Eldon Capital.
“At Backed, we prioritize founders, and we couldn’t envision a better leader for building Africa’s local bank than Tarek,” remarked Andre de Haes, founder and managing partner at Backed. “He began his career investing in banks during the 2008 financial crisis, evolved into a regulatory and strategy specialist, and has built Affinity’s robust banking software stack from the ground up. His knack for connecting with and understanding clients has significantly driven impressive initial user engagement.”
Compiled by Techarena.au.
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