Mobile money is so ubiquitous in Ghana people have little to no need for traditional banks. With a mobile money account—every major telecom player offers a ‘MoMo’ service—you can send and receive money, withdraw cash at vendor or agent outlets, even receive some interest if you leave your money in your wallet long enough, and run a small business comfortably.
Kofi Dotse, a Ghanaian serial entrepreneur, told me he hasn’t entered a banking hall in several years. Dotse runs advertising and event agencies as well as a clothing line, and carries out or routes business transactions primarily through his mobile money accounts. A couple of weeks before our interview, he had to visit a bank branch in order to clear a car at the port. He spent about two hours in the banking hall.
“There are a lot of people in Ghana today who don’t have bank accounts,” Dotse said, citing long queues and the snail pace of traditional banking services as a few reasons why.
For a small subset of the population, the time cost of visiting a bank branch to open an account or carry out a transaction is negligible, but for many, “it is an opportunity cost,” said Tarek Mouganie, founder of Ghana-based Affinity Africa. “So every time they leave their place of work as a sole proprietor, revenue goes to zero.”
Yet, while mobile money can ease the drudgery of traditional banking, Mouganie argues that, like traditional banks, it has its limitations: to open and verify an account might be less tedious but still requires physical presence at a mobile money outlet; there’s a 5,000 cedis (~$320) daily transaction limit for customers as a result of the licenses under which most operate; and customers pay transactions fees and levies when they use these services.
Mouganie, who spoke to me from the UK where he’d just arrived to begin a much needed vacation from work, launched Affinity Africa to address these limitations and more. With its savings and loans license—the first to be granted by the Bank of Ghana in over ten years—the digital bank offers full-fledged banking services to its customers in Ghana.
“We cover everything,” he said. “We have accounts on one end and we lend on the other end, and that’s how our business operates.”
Leapfrogging doesn’t solve everything
Half Ghanaian, Mouganie grew up in Kumasi, roughly 270 km from Ghana’s capital, Accra. He moved to the UK at 12 to study, and upon his return 13 years ago, found the difference in available and accessible financial services in both countries glaring.
“What I noticed basically [was] that the banking system is broken,” Mouganie said.
To fix its challenges, a lot of tech solutions have materialised over the years, but Mouganie said he found these solutions to be very siloed: here, payments; there, digital lenders or other fintech services, who take on one aspect of the broken system to try and fix. Mouganie said he wanted to build a holistic solution “not to just provide accessible products to customers but very importantly, affordable banking” to its customers.
Around 2013, before it became Affinity Africa, the startup was first a microfinance bank, operating with a microfinance institution license, which, though it had its limitations, allowed Mouganie and his team to better understand who they were trying to serve. Before obtaining this license, Mouganie said he was trying to acquire a greenfield license, which would have enabled Affinity “build (its) operations from scratch.”
But after fundraising from friends and family, the Ghana banking crisis of 2017 resulted in major regulatory changes that caused him to lose that license bid. Mouganie said he sold his four-bedroom house, raised more from friends, family, and former bosses to buy and launch the microfinance institution, then called PayFlex. The licensing process, which came to an end in 2020, took about four years, an effect of significant regulatory and supervisory measures the Bank of Ghana was instituting to strengthen the sector and protect consumers amidst volatile macroeconomic dynamics.
Just before the COVID-19 pandemic lockdowns ensued, Mouganie said with pre-seed funding, they started to look into upgrading to a savings and loans license which would allow Affinity to manage any kind of transactions except FX-related ones.
Mouganie said the process was “really rigorous” because, beyond its tech products, the regulator was trying to understand how the company was structuring its services to serve especially important demographics like micro-, small, and medium-sized enterprises (MSMEs).
The savings and loans license was formally granted in March 2022 after COVID-19-related pauses were lifted, the first the Bank of Ghana has dispensed in over ten years, Mouganie said. “That’s when Affinity as a brand existed in the market for the first time.”
The company obtained permission to launch its agency banking app in October 2022 and approval for electronic Know Your Customer (KYC), which enables fully digital online account opening via its mobile app, was granted at the end of December 2023, after another round of rigorous regulatory checks including for fail-proof fraud prevention and Anti-Money Laundering risk assessment.
Last–mile banking
Affinity Africa offers a range of financial services to its customers including MSME and personal accounts (which unregistered micro enterprises can sign up for), personal and business loans—which can be working capital loans or growth capital loans. Mouganie said the latter is a first in the Ghana market and allows businesses to make more long-term investments in their businesses.
Its interoperability allows customers to move money from their Affinity accounts to their mobile money or bank accounts and vice versa, as well as a network of agents that help customers carry out banking transactions and make cash available.
Though its services are accessed primarily through a proprietary mobile app, the company launched its agency banking in late 2022 to reach a wider range of customers who might be unwilling to use a mobile app or bank with an institution with no physical presence per se.
As journalist Eugene Ajyei put it to me on a call, though mobile money is widely adopted, a fully digital bank is still suspect in a low trust environment like Ghana.
With a pilot 26-member team, Mouganie said agents went around each day onboarding customers, typically merchants and business owners who are sole proprietors and cannot afford to leave their places of work physically for extended periods. These customers are onboarded onto the app and then use USSD channels to access Affinity’s services. Mouganie said the company was surprised to find that 55% of customers who were initially signed up via the USSD channel eventually migrated to the app.
“If you end up building an app-only approach, you’ll actually ignore the majority of Africans,” Mouganie said.
You’ll find many of these customers who would otherwise have been cut off from banking access in commercial nodes such as the Okaishie Market in Accra, where Clara Ajiboye Kassena’s general goods business is located. The retail and wholesale business has been in operation for about 15 years and was passed on to her by her late mother. Kassena said she learned about Affinity from a friend and opened a savings account with one of its “mobile bankers” who frequent the market.
In addition to using mobile money, Kassena said she used to operate an account with a traditional bank up until a sour interaction with a staff member while trying to withdraw some money at one of its branches caused her to cut ties with the bank.
“I don’t even go there for anything anymore,” she told me on a call.
These days, she operates a savings account with Affinity Africa. One of the company’s agents, or a “mobile banker” as they’re called in the market, comes by at the end of the day, and she deposits the day’s earnings into her account. Affinity’s lending service “has been a lifesaver” for her business, too, she explained. Over the three years since she has been a customer, Kassena said she has received two loans of 130,000 cedis (~$8,400) and 100,000 cedis (~$6,500) respectively. Both times, she put down a car as collateral and had repayment timelines of 12 and 10 months, respectively, which she said were “very sufficient” timelines to repay the loans at better interest rates than traditional banks offer without putting financial strain on herself or her business.
“It’s been very helpful. I’ve been able to restock my goods,” she told me, adding that certain limitations made assessing loans from traditional banks impossible for her.
Another Affinity Africa customer, Reuben Furguson, whose electrical merchandise business is located in Accra Central, echoes Kassena in the impact Affinity’s services, particularly its business loans, have had on his business. Furguson tells me on a call he’s never tried to obtain a traditional bank loan, but a friend had warned him to steer off it due to the impossible paperwork required. In his four years of banking with Affinity, he’s requested and received loans for his business twice, has found the interest rates and repayment timelines to be comparably better, and that the mobile bankers are willing to work with business owners to tweak repayment schedules should they run into business difficulties.
Serial entrepreneur Dotse, like a few other Ghana-based sources I spoke to, said though he had not heard about Affinity until our conversation, “anything that gets people away from the banking hall,” will potentially encourage adoption.
Vote of confidence
This perhaps reflects some of the confidence of Affinity’s investors. In February, Affinity announced it had raised $8 million in an oversubscribed seed round led by VC firms Grazia Equity, a 27-year-old venture firm located in Germany, and London-based BACKED VC. It marked the first African investments for each of these firms.
Dr. Benedikt Battke, Partner at Grazia Equity, told me on a call that his firm learned about Affinity through its network, which accounts for the majority of its highly selective investment decisions—the firm makes 2-3 investments out of roughly a thousand funding requests per year.
“We invest typically out of our network; being active for 27 years, we know every investor in Europe, and this opportunity and the introduction was made by one fellow investor,” Battke said.
The Ghana-based startup also presented a more stable first Africa landing for the firm, whose sights have been on the continent for some time, influenced by its growing population, and its hungry, innovative youth building despite political and economic volatility.
What the firm found most compelling about Affinity’s model, Battke said, was its hybrid, digitally-enabled approach with services and products that its market can access through multiple channels. In addition, its ability to combine “very important deposit collecting, raising local deposits, and using these deposits to offer the cheapest rates out there, the most convenient, but also the fairest product in the market,” according to Battke, presents a very broad and ambitious vision.
“We haven’t seen this in the country so far,” Battke said of the company’s approach, adding that it “can be a billion-dollar company or multiple billion-dollar company, if they execute this well.”
Similarly, Co-Founder and Managing Partner at Enza Capital, Mike Mompi, said this online-offline model tailored to the Ghana market, even down to the product name, was what compelled its investments into Affinity. Mouganie’s deep understanding of and experience in the banking sector as well as his attention to the local nuances in the problem Affinity is trying to solve also helped.
Mompi said Enza Capital invested about $1 million 2-3 years ago and is likely to make subsequent investments over time.
“I think what we saw in Tarek is that he was so driven to solve this problem and to provide a formal banking solution to people who didn’t have access to formal banking solutions, and for certain businesses and people who may have had access but who were getting charged with all sorts of fees, and who for maybe the service could be improved,” Mompi said.
Beyond monetary investments, both firms are providing other kinds of support to the Affinity team, from advising on boards and hiring committees, to technology development and network building to see its mission succeed.
Access is not enough
For Mouganie, Affinity Africa exists not only to expand access to banking services for people who live in Ghana, but to do so affordably. To do this, Mouganie said the bank manages three key costs with its model: cost of operations, which it addresses by being digital-first, cost of funding, and cost of risk.
To manage its cost of funding, Affinity collects, borrows, and lends in cedis, Ghana’s local currency, which is crucial for startups whose businesses are easily impacted by factors such as runway and regulatory volatility, he explained.
“We do not touch FX when it comes to funding our platform,” Mouganie said. “It’s different in Francophone countries where the CFA is pegged to the euro. But in our part of the world, when inflation and FX are a risk, it is very hard for you to justify it, especially at the stage of our growth.”
Affinity is able, however, to process foreign transactions through a partner bank.
Because it collects deposits, Affinity can manage its cost of risk—which entails identity checks as well as cushioning against lending defaults—by collecting relevant data from customers’ banking patterns and using this wealth of information to offer more secure loans at interest rates much lower than the prevailing market rates which can be as high as 10-16%. At a rate of 3-7% per month, Mouganie said the digital bank is “the cheapest lender for our customers in Ghana.” The goal is to continue to reduce the cost of loans for customers.
Affinity’s lending service, in addition to investments on its balance sheet, drives its revenue, around 90% according to Mouganie. Its other products and services, including business accounts, are offered at no cost. In the future, customers will have access to bank cards to facilitate transactions online.
Part of its aim at affordability also comes through in its digital-enabled model and ability to teach its customers with its products so they can understand its service offerings and make choices that best suit their financial needs.
So far, Affinity has onboarded over 50,000 customers in Ghana—65% of whom had never accessed formal banking products before, and over 60% of women working in the informal sector.
With its $8 million seed funding, Mouganie said the company is focused on two key areas in the near term: Ghana and growth. It’ll go towards measured customer acquisition as well as adding talent to the Affinity team. Launching in new markets is on the horizon, but these are more medium-term goals.
For now, the Ghana market will see more product launches and clean-ups and “we won’t start considering an international launch until we’re in the clear,” he said. “All our focus now is on Ghana.”
As a market, Mompi said Ghana tends “to be overlooked because Big Brother Nigeria is right next door,” but there are opportunities yet to be explored in Ghana to create tech-enabled products that solve challenges in ways that meaningfully improve the quality of people’s lives.
“Affinity is one of many emerging success stories that we’ll have over the next decade to two,” Mompi said.
