Headway Beyond Headlines: How Roscas Plans To Crack Mozambique’s Financially Underserved Market

While headlines trumpet a tech boom in Africa’s biggest economies, a quieter revolution is unfolding in the heart of Mozambique.

Despite boasting rich natural resources and a young, dynamic population, Mozambique’s economic journey has been riddled with challenges. Political instability, natural disasters, and high public debt have tempered its growth. However, a vibrant startup scene is emerging, tackling these very hurdles with innovative solutions.

Roscas, a young fintech startup named after the acronym for “rotating savings and credit association (ROSCA),” is a prime example. It’s chipping away at the vast unbanked population by leveraging technology to empower a deeply ingrained tradition: the self-help group.

These groups, typically comprised of friends, family, or neighbours, pool their savings regularly. They act as a vital safety net and access point to credit for those excluded from the formal banking system.

The scale of this informal financial sector is staggering. “The reality is that 80% of the population is informal,” says José Samo Gudo, co-founder of Roscas. “They’re not in the national pension scheme. There’s a lot of problems to be solved.”

From Paper Ledgers to Digital Vaults

Roscas began in 2019 as a subscription-based software solution for managing these groups, estimated by Gudo to hold a potential market value of USD 87 M in Mozambique alone. However, navigating Mozambique’s evolving fintech regulations presented a hurdle. To become a fully licensed fintech company in 2023, Roscas needed to shift its business model.

This shift presented both challenges and opportunities. One major hurdle was Mozambique’s limited digital infrastructure. While established players like M-Pesa dominate mobile money transactions, smartphone penetration remains low, particularly in rural areas where many self-help groups operate. Gudo estimates the real opportunity lies in Sub-Saharan Africa’s vast informal sector, with a potential market size of USD 2.9 B.

“We had to provide the operational structure,” says Gudo. “That means going into rural areas, finding agents, recruiting agents, and empowering them to serve our customers on our behalf.” This agent network, crucial for onboarding new groups and handling cash management as digital transactions are still in their early stages, has grown considerably since Roscas restarted user acquisition in January 2024.

Roscas has adopted a pragmatic approach, even resorting to leasing specialised smartphones for agents in rural areas, to ensure wider user inclusion.

Building Blocks and Leapfrogging

Roscas’ ambitions go beyond simply digitising traditional savings practices. The company envisions itself as a gateway to a broader financial ecosystem for these groups.

“We don’t just want to be somebody that is deploying capital and lending,” says Gudo. “We want to be a little bit more.”

One potential avenue is facilitating inter-group lending. Roscas’ digital records of a group’s saving history could enable them to access credit from external institutions like banks. “We allow the groups to save between them and to lend between them,” says Gudo. “But at some point, we want to add the ability of the groups to ask for liquidity from an external party such as a financial institution.”

Roscas is also exploring partnerships with investment banks to offer low-risk investment options for these groups’ savings. This focus on value creation is a differentiator, according to Gudo.

The Founder, nevertheless, acknowledges the competitive landscape, with established players and new startups eyeing the potential of Mozambique’s fintech space. However, he emphasizes the importance of collaboration over competition.

“There is competition, there will be competition,” says Gudo. “Sometimes it’s just sitting down and saying, ‘Okay, you’re trying to build something similar, and we did that with one of our competitors.'”

Roscas is also taking a measured approach to expansion. While Sub-Saharan Africa represents a vast potential market, the company is currently focused on scaling its platform within Mozambique before venturing into new territories.

“The central bank has invited us to do a presentation for the central bank of Eswatini,” says Gudo. “We’ve been invited to go to Angola, we’ve been invited to go to South Africa, but right now we’re thinking about expansion locally in Mozambique.”

Milestones, Breakthroughs, and the Road Ahead

Despite the challenges, Roscas has secured pre-seed funding from Renew Capital; an Africa-focused investment firm companies with high-growth potential, and restarted user acquisition after obtaining a provisional license from the Central Bank. The company boasts a growing agent network and is actively building a new iteration of its platform, having learned valuable lessons from the initial version.

Gudo acknowledges the evolving regulatory landscape. “They [the Central Bank] tend to be very conservative,” he says. “And it makes sense because it’s a fairly new process for our country, but we see a lot of progress being made, with the creation of the regulatory sandbox and other initiatives to streamline the licensing process.”

Roscas’ unfolding story epitomises the potential of fintech to bridge the financial inclusion gap in developing economies. By adapting to local needs, collaborating with stakeholders, and leveraging technology in creative ways, Roscas is paving the way for a more inclusive financial future for Mozambique’s informal economy.