CORRECTED - NY microfinance conference urges savings from poor

(Corrects title of Women's World Banking, paragraphs 3, 5)

* Microfinance proves resilient amid downturn -experts

* Industry needs to focus more on savings for the poor

By Michelle Nichols

NEW YORK, March 23 (Reuters) - Microfinance institutions should work to convince the poor to put their meager savings in bank deposits rather than under the mattress, so banks can become more profitable and make more loans, experts say.

As the industry created by charities -- led by Nobel Peace Prize winner Muhammad Yunus' Grameen Bank -- moves toward more regulation and profitability, it needs to develop sustainable ways to take deposits, experts told a New York conference.

"There's a huge untapped pool of savings in poor households that's desperate to be taken out from under the bed," Elizabeth Littlefield, chief executive of Consultative Group to Assist the Poor, told the Women's World Banking Microfinance and Capital Markets conference on Tuesday.

"We should be focusing more and more on finding ways to strengthen institutions so they can become profitable and then licensed to mobilize those savings and provide that incredibly valuable service to poor people," she said.

In the same way the poor have proven they can repay their loans -- with default rates of only about 3.5 percent, say experts -- they can save up to 40 percent of their income, said Women's World Banking chief executive Mary Ellen Iskenderian.

She said Women's World Banking was working with its network of 40 microfinance institutions from 28 countries to establish sustainable ways to develop savings products for the poor.

"It can't be lots of little small balances that come in and out of the account several times over the course of the month," she said. "We try to build longer term savings products around the things that the poor really want to save for."

According to the National Bureau of Economic Research, poor households with access to savings accounts are more likely to invest in education and health.

"SWIMMING NAKED"

Alex Silva, president and founder of financial consulting firm Omtrix, said microfinance groups should not ignore the cheap source of capital provided by savings and just continue to take funds from foreign investors and international banks.

"It's much easier (to take money from investors) and one should be very careful not to be crowding out the deposits. It's something we really need to pay attention to," he told the conference.

While the microfinance industry proved itself resilient during the global financial crisis, experts said, cracks were exposed that had been hidden by its rapid growth and some said deposit-based institutions fared better.

"When the tide is up everyone swims nicely, it is when the tide comes down you see who is swimming naked," Silva said.

"The industry, while being hit and taking some casualties, it has for the most part fared quite well," he said. "We should learn from the mistakes, we should correct, but overall the picture that I see coming out is its a more credible story."

Some of the cracks exposed, but not caused, by the economic downturn included "irresponsible lending" by some groups in competitive markets, said Iskenderian, and a lack of computer and human systems to support the rapid growth.

Gil Crawford, chief executive of microfinance investor MicroVest, said the industry should be congratulated for surviving with "very few spectacular flameouts."

"There is an increasing sense of the relative lack of correlation between microfinance and almost every other asset class," he said. "There are legitimate expectations that there are additional non-microcredit business opportunities that can be bolted on to a well-run microfinance institution -- savings, home improvement loans, home mortgages, education loans." (Editing by Mark Egan and Kenneth Barry)