Ghanaian Fintech Affinity Raises $8M for Digital Banking Expansion

Affinity Africa's Expansion in Ghana's Digital Banking Landscape

Leading digital banking platforms in Africa are generally found in rapidly expanding, densely populated nations such as Nigeria, South Africa, and Egypt. However, Affinity Africa, a relatively new company originating from Ghana, is aiming to become a significant player in this sector.

Securing Seed Funding for Growth

The startup has successfully secured $8 million in seed funding. This investment will be used to broaden the range of its financial products throughout Ghana, a country where mobile money is the predominant method of financial exchange.

The Profitability of Traditional Banking

Despite the increasing popularity of mobile money for transactions, the conventional banking industry in Ghana, and across Africa, continues to be highly profitable. Ghanaian banks have experienced growth since the onset of the pandemic.

Their after-tax return on equity (RoE) currently surpasses the global average.

Challenges with Traditional Systems

However, these profits are largely dependent on various fees. Inefficiencies, including high operational expenses, extensive paperwork requiring physical presence, and lengthy customer onboarding processes, have resulted in a significant portion of the population being underserved.

Financial Inclusion Gap in Africa

According to data from the World Bank, less than 10% of businesses in Africa currently have access to credit. Furthermore, over 60% of adults lack access to formal financial services.

This widening gap is driving the demand for alternative digital banking solutions, such as Affinity, which provide a more affordable and inclusive financial model.

Affinity Africa's Customer Base

Since its launch last October, Affinity has successfully onboarded over 50,000 customers, as stated by its founder and CEO, Tarek Mouganie. A significant 65% of these users were previously without access to traditional banking services.

Moreover, over 60% of Affinity’s user base consists of women engaged in the informal sector.

Regulatory Hurdles in Ghana

The comparatively slow emergence of digital banking startups in Ghana can be attributed to the country’s stringent banking regulations. Unlike Nigeria, where digital banks can operate with relative ease using microfinance licenses, obtaining such licenses in Ghana is a complex, costly, and time-consuming process.

Navigating Ghana's Regulatory Environment

“Ghana’s regulatory body prioritizes consumer protection, particularly within deposit-taking institutions,” Mouganie explained to TechCrunch. “We were required to demonstrate robust risk management capabilities, achieve profitability as a microfinance institution, and ensure our objectives aligned with the government’s initiative to provide banking services to the unbanked population.”

Ultimately, the regulator was persuaded by the platform’s ability to reduce friction and lower banking costs for both individuals and micro, small, and medium enterprises (MSMEs).

A Shift from Investment Banking to Fintech Innovation

Mouganie, originating from a Ghanaian family with Lebanese roots spanning four generations, pursued his education in the U.K., obtaining both a bachelor’s degree and a doctorate. His professional journey began in academia and finance.

He subsequently held a director position at Man Group, a globally recognized investment fund with assets under management totaling $160 billion. During his tenure, he participated in significant initial public offerings, notably Visa and Compartamos, a leading microfinance institution in Latin America.

Upon his return to Ghana a decade ago, Mouganie focused on addressing the issue of financial inclusion in Africa, a problem frequently emphasized in global consulting analyses.

“The statistic of a $331 billion credit gap in Africa continues to be cited,” he noted. “However, substantive progress remains elusive. This realization fueled my determination to establish a comprehensive retail bank for MSMEs, mirroring the services offered by institutions like Santander, Lloyds, and Chase Bank in Europe and the U.S., but specifically designed for the African market.”

Together with associates and family members, he secured $2 million in funding to acquire a microfinance bank in 2020. This funding included proceeds from the sale of his property in London, as he stated.

The acquired entity, granted a savings and loans license – the first such license issued in over a decade – functioned as a pilot platform for the development of their current banking solutions.

By 2022, Affinity successfully raised an additional $3 million in a pre-seed funding round, enabling them to upgrade their license. After a period of discreet testing, the fintech officially launched its application last October, following regulatory approval from the Bank of Ghana, the nation’s central bank.

The Ghanaian fintech caters to both individual customers and micro-enterprises, often operating as a blended segment within the African economic landscape.

Customers benefit from free savings and current accounts without transaction limitations, and the platform immediately initiates credit scoring based on user transaction data.

Following a period of usage, Affinity provides access to credit lines with monthly interest rates ranging from 3% to 7%. The Accra-based fintech has already distributed over $15 million in loans through various products.

Instant loan disbursement is experiencing a 30% monthly growth rate, while the non-performing loan (NPL) ratio remains at a low 3%.

Combining Digital and Traditional Banking Services

Affinity provides a range of financial services beyond basic banking, encompassing savings options, payment processing, investment opportunities, and fund transfers to both traditional banks and mobile money platforms. Recent data indicates that 89% of all deposit inflows last month originated from mobile money top-ups, representing a 54% increase compared to the previous month since the service’s introduction.

Loans constitute over 90% of Affinity’s total revenue, with the remaining 10% derived from fees and commissions generated through services like utility bill payments and internet access payments facilitated via USSD and the mobile application. Revenue has experienced a substantial 37% month-over-month growth over the past six months, as reported by Mouganie.

Similar to numerous digital banks operating across Africa, Affinity employs a hybrid model, integrating online banking with physical access points through its network of agents. Currently, approximately 30 agents engage directly with small businesses, assisting them with app onboarding and addressing trust concerns for those new to digital banking.

Of Affinity’s 50,000 customers, 26,000 were acquired through the agent network, while 24,000 registered directly via the mobile app. A significant 55% of customers initially onboarded by agents have subsequently transitioned to using the app, demonstrating a strong trend towards digital adoption following initial assistance.

Mouganie stated, “This trend is prompting a reevaluation of our agency strategy, with a greater emphasis on utilizing agents for onboarding, foundational education, and promoting digital literacy to encourage increased app usage. We are keen to optimize this combined growth strategy as we expand our operations.”

Recent Investment and Future Plans

Affinity recently secured $8 million in seed funding, led by European venture capital firms Grazia Equity (Germany) and BACKED VC (London), representing their inaugural investments in the African market. Additional investors include Enza Capital, Launch Africa, Renew Capital, Finca International, Attijariwafa Ventures, ImpactAssets, alongside early supporter Eldon Capital.

Andre de Haes, founder and managing partner at Backed, commented, “Backed prioritizes supporting strong founders, and we believe Tarek is exceptionally well-suited to establish a leading local bank in Africa. His background includes banking investment experience during the 2008 financial crisis, expertise in regulatory matters and strategic planning, and the development of a sophisticated banking software infrastructure for Affinity.”

De Haes further added, “His capacity to connect with and understand customers has resulted in impressive early user acquisition numbers.”