OSAKA -- Nichiei Co., the nation's largest lender of "shoko" high-interest loans for small businesses, effectively encouraged its employees to extend excessive loans to customers by introducing a merit-based wage system, it was learned Wednesday.

The Kyoto-based company is under fire for its strong-arm collection tactics, which are said to border on extortion, and is being probed in connection with the arrest last Saturday of an employee who allegedly urged a loan guarantor to sell his body parts to repay his debt.

According to company documents and testimony by those close to the firm, Nichiei, amid growing public criticism, in August distributed a document in the name of President Kazuo Matsuda telling employees to avoid excessive lending and tough loan-collection methods.

But it introduced a new merit-based wage system in late July that effectively drove workers to more aggressive lending practices.

According to a document dated July 30, the fixed monthly pay for a 20-year-old worker, for example, was reduced from 200,000 yen to 130,000 yen if single and 150,000 yen if married.

At the same time, a worker would be paid 24,000 yen extra for each new loan contract worth 3 million yen, 140,000 yen for each new 10 million yen contract and 630,000 yen for each 30 million yen contact.

Satoshi Makino, a lawyer supporting people who have experienced trouble with Nichiei and other shoko loan firms, said Matsuda's instruction in August was a mere gesture to deflect public criticism. He said the merit-based pay system introduced just previous shows its workers cannot survive unless they maintain an aggressive posture.

Matsuda, who was questioned Tuesday by the Financial Supervisory Agency and the Finance Ministry's Kinki Regional Finance Bureau, again denied knowledge of the harassing tactics used by the arrested employee to win payment of the loans extended by his firm.