Interview with Erick Oyugi, Founder & CEO of Malipo Circles.
Malipo Circles is a mobile app and service that lets people, friends, families and investment clubs or ‘chamas’ as they are popularly known in Kenya easily lend, borrow, and fundraise money for a myriad of scenarios. I recently had an interview with the founder, Erick Oyugi, who shared with me key insights from how it started, where they are, and where they are going. Here is the interview:
What was the inspiration behind Malipo Circles?
The idea was born out of challenges I had with my friends a few years ago in our investment club or chama. Our biggest problem was how to effectively collect money in a way that was transparent for all of us. We opened our ‘chama’ bank account and then had to have meetings to collect contributions as well as send money to the treasurer to deposit cash in the bank account.
This approach did not work. It was not transparent as to what was actually happening or going on until you got a statement from the bank, and at which point we would all have to meet again to review the statement together. All we wanted to see is what had everyone contributed as well as knowing how much we had in the bank — it was very simple questions that we needed answered and yet it was tedious and time consuming.
So, on the back of this messy situation, we asked ourselves what if there was a better way to do collections, do the accounting, the summations, and then transfer that money to the bank account. This would enable us to account for all transactions in a seamless and transparent manner. It would mean fewer meetings and better use of our time. This was the first phase of the idea that would end up becoming Malipo Circles.
So, basically, Malipo Circles was born out of the need to scratch your own itch?
Yes. Every solution that we have developed within Malipo Circles was actually solving problems I was dealing with every single day. For instance, the loans between friends feature was based on the insight that every so often you may be broke and instead of calling every person one by one to loan you cash, we created a system where you can make a request to your friends on Malipo Circles that is easy and fast. It’s cumbersome doing this sort of thing in the conventional manner so Malipo Circles takes out the effort and stress of loans between friends and family.
How long did it take to build Malipo Circles?
There have been two iterations of the plaform. The first iteration took us 2 years to do. It’s been 4 years since we started.
Wow! So, it’s taken a long time to make Malipo Circles happen?
We have been on it for a while! It’s a complicated platform — it’s not straightforward. You are collecting money, the accounting features have to be top-notch, you are giving loans, there are different interest rates, the movement of money is complex. It had to take us a while to make it all work right.
So, 4 years in total but the second 2 years is where it all came together?
Yes. We learned a lot from the first iteration to make the second iteration really work. We had to get integrations into the banks which took 2 years to do. We had to manage access levels for users within each group, and the approvals since money is being disbursed. So, for instance, we have the ‘merry go round’ where everyone contributes every month but only one or more of them can take a loan at any given time. Malipo Circles automates the whole process for chamas to do so much more efficiently and transparently.
So, you really had to go deep in terms of understanding the backward integrations, the use cases, the challenges, etc. It seems a lot of the effort was in understanding the different processes behind all these things, isn’t it? Even before the software development could begin.
Yes. Exactly. Before even building the software, we had to understand the processes as we really didn’t want to change people’s behavior when they already had a way of doing these things. We just wanted to give them an effective way of doing what they were already used to doing — this was the core idea behind it.
So, all we were really doing was automating those processes and making them simple enough to save them time, the conflicts, etc. I’ll give you an example that if you are ever in an investment group, the first hour of every meeting is to discuss accounting with lots of disagreements around amounts, interest rates, etc before even discussing the main agenda items of the meeting.
So many of the target users for Malipo Circles in the form of chamas would spend time focusing on the wrong things at their meetings?
Yes. This happens instead of the chama’s members focusing on how they should invest the monies that they have contributed. These accounting issues are so serious that many chama members end up having fights and even end up breaking up the chama itself. We strongly believe that progress can only be achieved as a chama when all the members are on the same page so if they are disagreeing on the basics nothing can be achieved.
All this is complex stuff so we want to remove the hassles out of the equation by giving people a platform that does the financial part so that members of chamas can focus on discussing and executing investment ideas.
What has been the impact of Malipo Circles?
Yes. Chamas are one of the biggest customer segments we are serving but we also realized that there are a lot of loans that happen between friends and family in Kenya. We came to realize that almost 70% of loans on our platform are between friends and family.
So, this is largely outside the formal channels for loans in Kenya?
Yes, outside banks and mobile loan apps, people still prefer to get loans from their friends and families because they are cheaper loans which will not punish you if you default. Quite often, these loans are just to sort a friend or a family member who is in a rut for a short period of time who will eventually repay it. So basically, if there is an accountable and transparent way of doing loans between friends and family then it actually makes things better for everyone via the platform we have created in Malipo Circles.
Was that surprising for you that so many loans happen between friends and family on Malipo Circles?
Yes. It was. But we expected it since when we were building Malipo Circles the thinking was always focussed on understanding how groups manage funds and how we can make it easier for them. So, we don’t know how they are going to use the platform but we are flexible enough for so many different use cases. We even discovered loan sharks were using our platform to disburse loans!
They figured out that rather than developing their own loan disbursements platform, why not use something like Malipo Circles to do it for them. This means that they could create accounts, determine their interest rates, and then manage everything from within Malipo Circles.
So, what is Malipo Circles then exactly because my understanding is you provide a platform that structures informal loan processes from being unstructured or undocumented?
What we have built with Malipo Circles is what you have described from the loans aspect of the platform — but it’s also a contributions platform. We describe Malipo Circles as a platform that helps groups of people who want to do something that requires finances to get it done. So, how do you do that? That is the problem that we believe we have solved.
There are so many use cases for Malipo Circles such as one of our users who has part-time employees and he uses Malipo Circles to disburse cash to them on a daily basis. This is not using Malipo Circles for loans but as a means of disbursing payments in an organized and documented way, via our mobile app.
OK. He also has a nice digital ledger where he can see everything?
He knows where he sent the money, the total money he has spent, etc and all that is captured for him easily from wherever he is within Malipo Circles. We have seen other companies are using Malipo Circles as a salary advance tool for their employees since they don’t need to go to the HR department to ask for cash, they can make their request on the platform, with the added benefit of no interest on their salary advance.
It also means that the employer can chose whatever interest rate he wants to charge on the salary advance. We had our own ideas of the core problems we are solving but the main use cases we are seeing are loans between friends, fundraising, and recurrent rent collections for landlords.
In the landlord scenario, tenants can pay for rent gradually throughout the month, but they have to have paid the full amount due by the end of the month. The landlord does not have to manage the accounting details on rental payments as Malipo Circles does that for them.
Is it possible for one to register for Malipo Circles as a company as opposed to doing so as an individual?
This is very possible. We have what we call a collection circle which is for companies that want to register on Malipo Circles. We get their VAT details, PIN numbers, etc. You can also choose if you want Malipo Circles primarily for collections or disbursements, etc.
Is the Malipo Circles mobile app on Apple’s iOS in addition to Google’s Android where it is currently available for download?
Not yet. We are working very hard to get it out as soon as possible but logistical issues are the main bottleneck to go live at this time on iOS.
How many users do you have on Malipo Circles?
We have around 15,000 users at this time. The growth of our userbase has been largely organic although we did do some advertising in the period just preceding the COVID-19 lockdown in Kenya, which made us pause our marketing efforts. We officially launched the Malipo Circles mobile app for Android in the month of March 2020 and we have achieved our current userbase almost purely on customer referrals and organic growth.
Where do you see Malipo Circles going in the next 2 to 5 years?
Our main focus is to grow within Africa and we also have a roadmap of features and functionalities that we will be adding to Malipo Circles. We hope to launch the next iteration of Malipo Circles in December 2020 with something called ‘Malipo Experiences’. We are really trying to solve this group issue of all things financial. We are looking at key markets like South Africa, Nigeria, Ethiopia, Uganda, and parts of West Africa.
Is Africa’s mobile money ecosystem the key driver Malipo Circles business model in the same way it is for the mobile loan apps that are hugely popular in markets like Kenya?
Mobile money is key for us but you can also contribute using credit and debit cards. You can withdraw directly to your bank account. It depends on every market, so we are using all payment options available so that Malipo Circles will work wherever we go. However, one thing we are not doing is collecting cash as there are regulatory issues and other risks that come with that.
What are some of the challenges you have faced in setting up and operating Malipo Circles during these times of uncertainty?
One of our biggest challenges is growing our userbase from our current 15,000 users to 150,000 by the end of 2020. Growth has been slow given the current pandemic scenario in Kenya. People have less money in their pockets to run their chamas so this has had a major impact on Malipo Circles’ performance.
People are also generally reluctant to give out loans at the moment since they have no reassurance if they will get paid back on time if at all within the current challenging economic environment created by COVID-19. We are very aware of the challenges everyone is facing today but still believe that Malipo Circles is useful under these circumstances.
What do you see as the next big thing for Malipo Circles?
We don’t see the collection and disbursement of funds as our main business. We think there will be a bigger opportunity around value-addition for our users once we scale up beyond loans, savings, etc.