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The Business Secrets Held in India’s Nutella Jars

Small retailers in India have always been neglected by banks. Standard Chartered is taking a granular approach to helping them get credit.

A case of Dove bars, a couple of dozen Lay’s packets, six jars of Nutella. To the owner of a tiny mom-and-pop store, these may just be the humdrum weekly sales figures for soap, chips and bread spread. But to Solv, a business-to-business marketplace for India’s 60 million-plus small companies, they’re all crucial pieces of a gigantic banking jigsaw.

Ninety percent of the country’s trade passes through neighborhood “kirana” shops, each with annual sales of $0.5 million or less. Their owners mostly operate without business registration and lack access to the formal banking system. “They may not have a credit bureau score, or have only a poor score,” says Amit Bansal, chief executive officer of Solv. “Traditional banks don’t have a method to measure their ability to pay.”

In the absence of formal working-capital lines, small stores rely on informal credit from distributors of brand owners like Unilever Plc and Procter & Gamble Co. But relationship-based financing, which comes embedded in the inventory, is tightly rationed by distributors within a small circle of trusted retailers. Not everyone who’s able to grow can get the credit they need.

It’s a strange predicament in a country that boasts one of the world’s biggest success stories in capital-guzzling modern retail in recent years. Billionaire Mukesh Ambani’s Reliance Retail is an $18-billion empire spanning groceries, electronics and apparel, more than three times the size of its nearest rival and growing roughly 40% bigger every year, according to Sanford C. Bernstein & Co.

While Ambani raised billions of dollars for his retail venture during the pandemic from Singapore’s sovereign wealth fund GIC Pte. and private-equity firms Silver Lake Partners, TPG, KKR & Co. and General Atlantic, the smaller firms that keep the society fed and clothed and employ 110 million people — more than the population of Vietnam — are being held back by $400 billion in unmet credit needs.

As the head of Standard Chartered Plc’s global transaction banking until 2018, Alex Manson sensed the gap. Some of his corporate clients were telling him: “You’re banking us, and it’s fine, but you aren’t banking our suppliers, our distributors, or the distributors of our distributors.”

Lenders like StanChart were set up to offer corporate and consumer banking. But going downstream from large corporations required a new playbook. The needs of small and midsized enterprises — India’s “forgotten middle,” as Manson describes them — were complex. They were hungry for credit. But before they could digest it, they had to attract new customers and gain access to more products and faster logistics. “What SMEs were really after was a platform that would help them grow their business,” Manson says.

Which is why London-based bank decided it needed to step into India’s enormous, messy world of everyday commerce, facilitating connections between reliable suppliers and buyers and ensuring door-step pick-up and delivery — even before offering financing to these small businesses. Via its innovation arm SC Ventures — Manson’s new perch since 2018 — StanChart backed Solv.

The marketplace completed its first full year of operations in 2021 and has a current annualized run rate of $190 million in gross merchandise value, which CEO Bansal is confident of tripling this year by adding new cities and product lines. The goal is to deliver each order profitably by yearend, so that Solv can be scaled up without burning investor cash.

As firms buy and sell on the platform, they leave behind a rich trail of granular transactions history and delivery feedback. “A store that sells a lot of Nutella jars or Perrier water may tell me something absolutely different about their locality” than just the postal code, says Bansal. Add up the insights with standard credit scores as well as information gleaned from other sources — such as product reviews, text-message analytics and even litigation data — and you have individual Solv scores for 150,000-plus fully verified business customers.

The scoring project is still a work in progress, but once it proves its utility as a predictor of creditworthiness, it could emerge as a valuable metric for StanChart and other lenders extending credit to small shops. Distributors, too, could use these scores to expand their circle of trust. Bringing transactions to an online marketplace opens up another opportunity: business software. When it comes to managing their inventory, “the proprietor pretty much has it on the back of a bus ticket,” says Bansal. “The only access to technology they have is a mobile phone. Can we give them a solution as simple as WhatsApp that helps them keep track of their inventories?”

Several other players are asking the same question as they seek to bring institutional credit to “thin-file customers” — banking jargon for mom-and-pop operations. Leading the charge is Udaan, a startup handling $3 billion to $4 billion in business-to-business e-commerce annually. Unlike Solv, which is a pure marketplace, the Lightspeed Venture Partners-backed Udaan stocks up inventory in food, grocery and other fast-moving consumer goods, but acts as a matchmaker in lifestyle and fashion, where tastes change rapidly.

Even Ambani’s Reliance is getting into the act. It has signed up small stores in more than 3,500 Indian cities and towns, potentially helping them fulfill online orders from more than 400 million customers of its Jio mobile-phone service. JioMart, its app for kirana e-commerce, has been downloaded almost 11 million times in the last six months, according to Bernstein.

Not all tech-led commerce platforms are born equal. Some will leave established patterns of mutual dependence between large brands and smaller intermediaries undisturbed; others will squeeze out layers of middlemen and cause societal anxiety about loss of livelihood. It’s hard to say which of the two models will win, though ultimately both aim to attract business users to a network by promising growth and, by monitoring their activity, extract data that is useful to lenders. As finance enters the scene, more firms sign up to supply fresh data. India’s underfinanced but rapidly digitizing small-business landscape makes it a perfect laboratory to experiment with such data, network, activity — DNA — loops.

“Stay tuned for Solv in other markets,” says Manson, who heads SC Ventures from Singapore. The next stop for the business-to-business marketplace may be Kenya.

Instead of trying to read the tea leaves of growth, unemployment and inflation, bankers may now want to pore over orders for Nutella jars.