Bangalore: E. Shantha, 32, earns just Rs1,500 a month cooking in an eatery located in the premises of a local court, but she totes a new mobile phone and even transacts over it.

Mobile transactions are a breeze for her, unlike the majority of over 456 million mobile phone users in the country who use their phones mainly to make and receive calls.

The mChek way: Women from Rajendra Nagar, a slum in Bangalore, at a microfinance meeting using mobile phones to make transactions. Hemant Mishra / Mint

“I got three days of training and now I can train others," says the intrepid mother of two, who makes an average of five transactions a week including balance enquiries, deposits and withdrawals.

Shantha, who has taken a Rs9,000 micro loan to buy a welding machine for her husband, is among 100 women who are part of a year-long pilot run by mChek India Payment Systems Pvt. Ltd and Grameen Koota-Micro Finance Institution to implement mobile payments in the micro credit sector.

To take this beyond the pilot phase, mChek needs to tie up with a bank. Under Reserve Bank of India (RBI) norms, mobile payments have to be routed only through bank or credit card accounts. The Bangalore-based mobile payments company is in talks with half a dozen banks and aims to tie up with at least one by December.

“We have cracked the business model on paper. Now we need to do a commercial pilot," says Valerie Rozycki, mChek’s head of strategic initiatives and a masters in economic sociology from Stanford University.

Unlike in earlier other trials, mChek aims to empower the borrower rather than the loan collector, so she can maintain a bank balance and make other mobile transactions such as utility bill payments as well.

This, according to mChek, would help solve the nagging problem of monetization for all the parties involved—mChek, the telecom service provider, the microfinance institution and the bank.

Suresh Krishna, managing director, Grameen Koota, says the mobile payment system will help reduce disbursement and collection costs significantly. “Savings come from reduction in cash carrying, insurance premium paid, better idle cash management, etc."

Shantha looks forward to the facility. “Then I don’t have to take leave (from work) and go to the electricity office."

Over the last three years, in an effort to reduce the cost per transaction, heighten safety and reach remote regions, several microfinance institutions have dabbled with mobile phone technologies, albeit with little success.

“No technology has scaled up (in the microfinance sector)," says Suresh Gurumani, chief executive at India’s largest microfinance institution, SKS Microfinance.

Last year, SKS did a pilot for mobile-based loan disbursal and repayment in Nalgonda district in central Andhra Pradesh, but soon abandoned it. Gurumani says SKS couldn’t go beyond a pilot given that only banks can offer mobile payments.

Similarly, Varanasi-based microfinance institution Cashpor Micro Credit’s pilot in November fell flat, but due to technology reasons. “The level of error was too high," says David S. Gibbons, chairman at Cashpor.

The pilot ran in a village outside Varanasi using camera fitted mobile phones to check fraud and minimize paper work. However, the camera often did not recognize members’ faces. Next month, Cashpor plans to run a field test using biometric readers.

According to industry players, the reasons for the poor uptake of technology in microcredit include unviable technologies, poor telecom networks in rural India, RBI’s restrictions, and affordability of mobile phones.

MChek claims it has solved the problem of affordability. Each self-help group member has to purchase only a Rs50 subscriber identity module (SIM) card and the microfinance institution or bank would buy phones for its loan agents and group leaders, says Rozycki. The group members would take turns using the phone.

On offer are Nokia Corp. phones with a cable which allows SIM cards to be fitted externally. These cost about Rs1,200 and are aimed at shared usage.

SKS’s Gurumani is sceptical. “Any model involving multiple players becomes a serious challenge," he says.

Still, it is important to keep experimenting, says Basant Shroff, associate director, financial services, at audit and consulting firm Ernst and Young India. “How do you cover the last mile is the issue?"