Fundraising: ChamaPesa, Kenya’s new mobile savings system

chamapesa
Learn more about the entrepreneurs selected to fundraise in VC4Africa’s June CohortBelow we interview Ken Griffith of ChamaPesa
, a revolutionary savings management app. Inspired to raise capital yourself? Check out the call for applications for VC4Africa’s September Cohort.

What’s the business opportunity you address and the essence of your business plan?

“Kenya has 300,000 social savings groups – Chamas – that save 300 billion shillings (US$ 3.4 billion) per year. A lot of this money is outside the financial system – cash stuffed in lock boxes – and is often mismanaged. Our application, ChamaPesa, enables these Chamas to better manage their savings with good governance and transparency for the members; and it allows financial institutions to offer financial services such as currency accounts, securities and insurance directly to savings groups at low cost. ChamaPesa also enables Kenyans to directly save into their Chama account using MPESA.”

What makes Chamapesa interesting for investors?

“The Android app ChamaPesa is focused on savings, but under the hood it is fundamentally a payment system that is network independent. Samsung and Intel are saying that in five years the majority of Africans will have Android phones. This will open the door for payments apps like ChamaPesa that work for people using different telephone companies, and could allow the Kenyan diaspora to use the same payment application as their family in Kenya. Imagine “WhatsApp” for money.

While it is still too soon for a general purpose Android payment system, we already have a viable market for Chama savings with the small penetration of Android phones today. We are building a network of social savings groups that could be upgraded to become an agent network once the general penetration of Android phones will support a general payment system. The potential to offer our users access to multiple financial instruments promises to be quite lucrative in the long run.”

What are your unique selling points compared to your competitors?

“There are two other Chama management apps in progress, that we would consider competition, as well as systems like MShwari that offer micro-savings alternatives. And Musoni is building a channel delivery system for micro finance institutions. However, our offering is substantially different: we offer a delivery channel for many products such as financial instruments and MPESA, rather than a single product. If a Chama uses our application, they will get access to investment options they might not otherwise have.”

What’s the story of how ChamaPesa was started?

“I have been involved in the digital payments space since 1997. In 1996 I read “The Sovereign Individual” by James Davidson and Lord Rees-Mogg, that accurately predicted the miracle of MPESA, which convinced me that Internet payment systems would reshape the future.

I started reading about “financial cryptography”, the use of encryption to secure transactions over communications networks, and in 1998 attended the Financial Cryptography Conference in the Caribbean, with people as diverse as David Chaum, the inventor of “digital cash”, Ron Rivest, the R in RSA,  Duncan Goldie-Scot, who later founded Musoni – the most advanced MFI in East Africa-, as well as Peter Thiel, and even people from the BIS.

At this conference I met Ian Grigg as one of the presenters. Today Ian is the co-founder and majority shareholder in the ChamaPesa project. He is a senior software engineer with an MBA from London Business School, who has been developing reliable Internet payment and accounting systems since 1995: he started the Cryptix JCE Project, the first encryption library for Java, he’s the editor of financialcryptography.com, and over the past 15 years has developed a secure and reliable transactions system called “Ricardo” (after the economist,David Ricardo).

In 2010 I was invited to Kenya by a friend who runs an NGO from Nairobi. When I learned about the success of MPESA I immediately recognized the scenario that we had discussed ten years before.

The environment that allowed MPESA to succeed in Kenya was largely due to the “wait and see” policy of Kenya’s Central Bank. The regulator is proud of their success and relatively permissive toward similar innovations. This is an encouraging environment for startups. Highly regulated developed countries tend to raise the barrier to entry for internet payment companies so high as to prevent innovation from getting started. For example,California is now claiming that AirBNB.com is a “money transmitter” and must meet the same kind of licensure, KYC and reporting requirements as companies like Western Union. This type of over-regulation is driving innovators to the “edges” of the developed world – places like Kenya – where there is more freedom to pursue new ideas.

I decided to move to Kenya in 2011, where I saw opportunities for more diverse types of mobile financial instruments. In the Summer of 2012 I asked Ian if he would be interested in a project deploying his Ricardo transaction platform software. Ian was cautious at first, but agreed to come to Nairobi to meet me for a week in October. We then arrived at an agreement along with our angel investor, and we formed the venture by contract in December 2012 to create the ChamaPesa app for the Android phone.”

What milestones have you reached to date?

“We incorporated the venture in Hong Kong, raised $50,000 to port the Ricardo software to Android, and successfully accomplished this in 4 months. We started a pilot savings group, registered this group with the government, opened financial accounts for them and created two financial instruments for them. We have used input from the savings group to improve the app. Several leaders of existing Chamas have asked to take this system to their Chama.

Last month Dr. Tonny Omwansa joined our venture as an advisor. Tonny has been writing about financial inclusion projects for the past five years, is the co-author of a forthcoming book on MPESA: Money, Real Quick: Kenya’s Disruptive Mobile Money Innovation, and is now working with us to develop a targeted savings product to help Kenyan parents save for school fees using MPESA.”

How have you financed the business to date?

“We as co-founders have put $24,000 of our own money into the project, and we have raised an angel round of $50K. As co-founders we are currently forgoing salaries.”

What kind of investments are you looking for, and which milestones do you want to reach?

“We are looking for one or two impact investors to raise a total of $750,000. This is an early-stage startup, and software creation is capital intensive. We need to hire more programmers as well as sales and operations staff. Our goal is for that investment to carry us through three years and reach annual net revenue of $500,000.”

What social/economic impact do you have and are you aiming for?

“We hope that a long term impact of our work will be to help raise the savings rate in Africa. We believe the reason for relatively low savings rates in Africa is partly because the poor do not have a way to save that gives them real returns after inflation.

By giving the poor better quality savings options, we think we can increase the incentive for people to save. Gates Foundation, Aga Khan, Grameen and others have networks of volunteers out there training people to run savings groups. We are offering a tool to increase the effectiveness of those savings groups.”

How has VC4Africa created value for you, and what would you say to entrepreneurs who might consider to apply for VC4Africa’s September Cohort?

“We have participated in other programs, but the level of consulting and training we have received from VC4Africa has been outstanding. While I have been involved in several startups, I have not been in the role of pitching it to investors before. Saskia (VC4Africa’s Head of Investor Relations and cohort coach) organized coaching sessions for us on financials as well as the business plan. We found it quite valuable to get feedback from several investors’ perspectives, and we are still in the process of implementing what we learned from the coaching. I am amazed at the amount of time and valuable in-depth consulting that we received. We have seen that VC4Africa truly invests in the success of their cohort members, and we greatly appreciate that.”

Inspired to raise capital yourself? Check out the call for applications for VC4Africa’s September CohortInteresting investment? Check out ChamaPesa VC4Africa venture profileOnly investors registered on VC4Africa can get access to private documents and all other details of the ventures, and express their interest to invest.