Q. Multi level marketing (MLM) for muslims and Islamic point of view
The thought of entering into a multi level marketing business or job would seemed attractive to many as more people are finding it harder to land a job with the economic crisis.
1) As a muslim, what is your stand with this regard?
2) What does the Islamic scholars have to say about this?
The type of business based upon a pyramid scheme – or “multi-level marketing” as it is often called – is unlawful. The real objective of such a business is to obtain the commissions earned from introducing new members to the company and not to earn profits from the sale of the products themselves. At a time when the commissions may reach into the tens of thousands of dollars, the revenue collected from the sale of the products might only be a few hundred. Any person of sense who is given a choice in such a scheme will obviously go for the commission.
This is the reason why companies of this kind, when promoting themselves, depend so heavily on showing the large volume of substantial commissions that they are giving out. They attract customers by the promise of large returns against the payment of a relatively modest initial sum that is often represented as the “price of the product”. The product this company is marketing, however, is merely a pretext to obtain commissions and to profit from those commissions.
With this being the true nature of the business, the Islamic ruling on it is that it is unlawful. The reasons for it being unlawful are as follows.
1. It entails the two kinds of unlawful interest:
a. Ribâ al-fadl: the interest resulting from an exchange of like for like in an unequal manner
b. Ribâ al-nasî’ah: the interest that is paid in lieu of credit.
The subscriber is paying a smaller sum at present in order to obtain a much larger sum of money at a later time in exchange for it. This is essentially an exchange of one sum of money for another sum of money of a greater value with a time delay. This is unlawful interest, as stated clearly by the sacred texts and agreed upon by consensus.
The product that is sold by the company is only a pretext for the real exchange that is going on. It is not intended in and of itself, and thus does not have any affect on the ruling.
2. It entails an unlawful degree of transactional uncertainty (gharar)
This uncertainty results from the subscriber not knowing whether or not he can obtain the required number of new subscriber to obtain his commission.
This pyramid scheme, no matter how long it lasts, will eventually come to an end. The subscriber is going into this pyramid scheme not knowing where he ranks in it; whether he will be in one of the higher tiers that will receive large profits or in one the lower tiers that will lose out.
As a matter of fact, the majority of the subscribers will be losers and only a minority will profit. Thus, loss in such schemes predominates, and this is the nature of transactional uncertainty. Here is a case where there is uncertainty between two outcomes, the most likely of them being the worst.
The Prophet (peace be upon him) forbade transactional uncertainty, as related by Abû Hurayrah who said: “Allah’s Messenger (peace be upon him) forbade business transactions determined by the throw of a stone and business transactions involving uncertainty.” [Sahîh Muslim (1513)]
3. It entails taking the money of others falsely.
It is essentially only the company that profits along with those who persuade others by way of deception to hand over their money to the company.
Allah says: “O you who believe! Do not devour your wealth among yourselves falsely.” [Sûrah al-Nisâ’: 29]
4. It entails deception and fraud.
The company deceives people by misrepresenting its product as its business, when the sale of the product is not its true goal. It also engages in deception by holding out the promise of substantial commissions to would-be subscribers, when such large commissions are for most subscribers not possible to achieve. This is unlawful deception.
The Prophet (peace be upon him) said: “He who cheats us is not one of us.” [Sahîh Muslim (101)]
This business arrangement cannot rightly be described as a brokerage agreement
A broker receives a commission for the sale of a real product, while there is no real product being sold here. In fact, the subscriber in a multi-level marketing scheme is actually paying for the right to market the product.
Also, with a real brokerage contract, the purpose behind it is actually to sell the product, whereas in multi-level marketing, the purpose is to sell memberships and not the product itself. This is why a subscriber strives to market to others the right to market to others, so that they can in turn market to others the right to market to others ad infinitum.
In a brokerage agreement, by contrast, the broker is out to get the product sold to someone who actually wants to purchase it.
These commissions, likewise, cannot be described as gifts or bonuses
Even if we were to classify these commissions as gifts, Islamic Law would view them as unlawful gifts. Not all gifts are permitted by Islamic Law. For instance, the gift from a debtor to his creditor is considered usury.
This is why `Abd Allah b. Salâm, the eminent Companion, said to Abû Bardah: “You are in a land where the practice of interest is rife. Therefore, it someone is in debt to you and gives you a gift – say, a bail of straw, a load of barley, or a pile of feed – then that is interest.” [Sahîh al-Bukhârî (3814)]
A gift takes the ruling of the purpose behind it. For this reason, when a Zakâh collector came to the Prophet (peace be upon him) and said: “This is for you and this is what was given to me as a gift.”
The Prophet (peace be upon him) responded to this by saying: “Had you been sitting at home with your mother and father, would he have come to you and given you that gift?” [Sahîh al-Bukhârî (2597) and Sahîh Muslim (1832)]
The commissions given by the company in a pyramid scheme are given only on the basis of membership. Therefore, no matter what name we choose to give it, it will not affect what it actually is or the legal ruling that it takes.
The Permanent Committee in Saudi Arabia for Research and Fatwâ
'The Exclusion Order 2001 continued to maintain that insurance companies and master franchises would be excluded from the MLM Act.
However, it also introduced the following rules for direct selling companies:
* Safeguards - A participant cannot be required to provide any benefit or acquire any commodity in order to become a participant in the scheme, other than the purchase of demonstration equipment which is not for resale, at no more than cost price and for which no commission can be given out. A legitimate multi-level marketing scheme would not impose a financial risk on salespersons. For example, salespersons should be entitled to full refunds, under reasonable commercial terms, for any inventories kept or purchased by them which are not sold to end consumers, so long as the inventories are returned within a period of 60 days.
* Behavioural checks - The companies must not misrepresent the scheme as get-rich-quick opportunities, and should not use fraud, coercion, harassment, or unconscionable means to force people to join the scheme. Instead, the companies should focus their efforts on promoting the quality and features of the products. If a company wishes to show potential participants the earning potential, they must keep records of the maximum, minimum, mean, mode and median earnings of their salespeople in the past.
* Sharing of commission - It is all right for a salesperson to share commissions from several layers of salespersons recruited by him. However, such commissions must be generated by sale of the product or service in question, and not through the recruitment of additional participants into the scheme. '
I think if the MLM scheme conforms to the MLM Act, it is o.k. The Act seems compatible with Islamic principles.
MLM itself has so many definitions. If you read carefully, the one referred to by the Permanent Committee is not the same as the one allowed under the MLM Act.
The MLM Act also prohibits most other forms of MLM, including the one referred to by the Permanent Committee.
The intention here is not to unnecessarily
penalize legitimate business venture.
The MLM Act, with the amended Exclusion Order 2001 was formulated after much study and taking feedback from the business community.
Many countries have their own MLM Act. These were done with details definitions of what constitutes MLM.
A Haram rule must be preceded by detailed defitions of MLM. A blanket rule is an easy way out of a rather complex problem.
Ahxuan, I did not say the MLM Act was formulated with the Syariah Law in mind.
Just that, In some cases, Civil Law are compatible with Syariah Law,
Let me share with you from a businessman's perspective and I am no where a MLM marketeer but I was once part of it and I learned a lot from it back then.
You want to know the truth. Every single organisation is a PYRAMID.
At the end of the day its either the BOSSES that earn the most money or the TOP UPLINES in MLM will make the earnings.
A lot of you out there don't understand because you have no idea how hard it is to be at the top to deserve such an income cos its takes hardwork, dedication and sacrifices.
You see in a conventional business, the boss can sooner or later shake his legs and run off if he wants to and all the work is done by the employees. All the boss needs is to work smart and hard for a few years build a system and let the system runs its own course.
Similar to MLM structures, the top people have to actually built their network from the ground up and on average that would take something like 2-5 years before he/she could get a very good income. The secret in MLM is duplication meaning you pass on the business knowledge to the downline so that he/she can be successful too. By passing the knowledge and when it bear fruit, the uplines also receives the rewards.
I dont see how RIBA comes in play because your rewards is also based on the size and performance of the network.
Here's my illustration to you.
I am the boss. Then I teach my employee to do sales. I send her out to do marketing and sales and she happen to close some deals. I reward her with differences in margin and at the same time i get my cut because I own the company. So now did I do the selling? No. I teach others how to do it and I earn through them. At the same time providing her opportunity to work. So is this called RIBA?
before you guys go on I hope you guys start studying the systems proper.
Some MLM systems too have very legitimate and great systems to begin with.
I may sound very secular but in this case i studied them and I dont see anything wrong with it.
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