"We have to think about whose money we are giving to whom," he said.

The noted economist said it cannot be accepted that the money deposited by the villagers would be disbursed among the entrepreneurs in the towns.

"A bank will have to lend a significant amount of money in the places from where it collects deposits," he suggested in a lecture on the ethics in banking.

The Grameen Bank managing director said Bangladesh Bank should include a provision in the banking laws to ensure lending to the rural entrepreneurs.

Prof Yunus said as the money collected from the rural areas is channelled into the urban areas, the villages are deprived of economic prosperity.

Former adviser to the caretaker government Prof Wahiduddin Mahmud also stressed banks' role in extending loans to farmers and small entrepreneurs.

He said farmers and small entrepreneurs seem to have lost out in the competition with the big businesses who mostly receive loans from the commercial banks.

The eminent economist found that small enterprises have been bypassed both by the formal banking and microcredit programmes.

He suggested finding innovative solutions to the problems of the "missing middle" who are deprived of funds.

Prof Wahiduddin said the greatest limitation of the formal banking system is its inability to cater to the credit needs of the small entrepreneurs.

"Pro-market reforms of the financial sector can do little to address this problem," he said in the fifth Nurul Matin memorial lecture at the BIBM auditorium.

The former Dhaka University professor sounded a note of warning to some problem banks and excessive expenditure by banks on decoration.

"In general, the banking sector in Bangladesh is good but some problem banks can create instability any time as it happened in many countries," he noted, suggesting merger, closure or taking over the problem banks to improve their conditions.

Bangladesh Bank Governor Salehuddin Ahmed, Palli Karma Shahayak Foundation Managing Director Fakhruddin Ahmed and BIBM (Bangladeshi Institute of Bank Management) Director General Ruhul Amin also took part in the discussion.

Prof Wahiduddin said banks may jeopardise their long-term financial viability by offering excessively high salaries to attract skilled managers or by declaring too high dividends to improve their standing in the share markets.

He also warned the commercial banks about engaging in the warfare of hiking up interest rates to attract deposits. "There are important issues of social responsibility for banks beyond merely engaging in market competition."

Prof Wahiduddin raised some unresolved questions regarding financial market's role in supporting a broad based and pro-poor growth in Bangladesh.

He said: "Could commercial banking adopt an approach to absorb the genuine losses incurred for giving collateral-free loans to small entrepreneurs and remain profitable?"

"Could there be some kind of social insurance to cover such losses," he asked.

The professor of economics said how could one ensure enough supervision to avoid wilful default by small borrowers? He suggested bank-NGO collaboration in this regard.

Prof Wahiduddin said some NGOs engaged in microcredit programmes could be turned into rural banks under an appropriate legal framework.

BB Governor Dr Salehuddin said there should be a moral pressure on the loan defaulters and application of the central bank's rules and regulations to reduce classified loans.

Banks will have to think about how the poor people could be served through various banking products, he said.

His predecessor Dr Fakhruddin suggested a code of ethics for the banks. He said the laws in the banking sector are not being practised properly.