That translates into a lack of growth for businesses that can't expand because they can't get loans.
"The object is ... for banks to lend more, and more cheaply," said President Enrique Pena Nieto. "Credit is a key input for growth in any economy."
The Mexican Bankers Association said in a statement that it agreed with the goals of the proposal as long as changes carried out "through market measures," but said it would study the specifics of the plan.
Jonathan Heath, an independent Mexico City-based economist, said few banks in Mexican have been willing to lend to small businesses that often fold within a couple of years, because the country's laws make it difficult to seize collateral pledges or assets put up in return for loans.
"How do you lend to a company and have the guarantee they're going to pay you back? No financial system is going to work if you don't have clear property rights," Heath said. "Why would a bank prefer to lend money with a much higher risk rate, when it can just buy the government bonds and just live comfortably off that."
The overhaul would change Mexico's antiquated and length bankruptcy proceedings, and ease the way for banks to seize debtors' assets. That has raised fears in a country where millions of people faced the prospect of losing their homes in the 1995 crisis, when interest rates on their mortgages suddenly shot up to 100 percent.
That spurred big demonstrations against foreclosures in Mexico like those currently seen in Spain, following the bursting of that country's housing bubble.
Alfonso Ramirez Cuellar of the El Barzon debtors' advocacy group said he feared the proposed changes could spur a Spanish-style wave of foreclosures.
"We could find ourselves in an accelerated foreclosure situation as serious as that which occurred in Spain or in other countries, like the United States ... the kind of crisis that is caused by accelerated trials where the process of seizing assets is just too rapid," Ramirez Cuellar said.
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