Multi Level Marketing and Islamic Shariah

By: Syed Sadat Husaini


Network marketing or Multi Level Marketing is a fast growing marketing strategy in India and the world over. Because of the attractive and easy earning profit packages it offers, it has become one of the greatest sources of hopes for the middle class, desperately struggling to have sound economic base in the post globalisation consumerist society where every one is in need of large money for sustenance. Since it is a method of earning readily available for every body, it has become an easy employment tool for thousands of unemployed youth in India.
Whether MLM is islamically valid, is an important question being posed before Islamic scholars. The paper basically intends to explain what exactly the MLM is? And in the latter part it will address the Islamic position on this marketing strategy.
What is MLM?
MLM is a marketing strategy in which each distributor has the opportunity to gain override payments on sales of as many as six levels of sales representatives below. Success in this business involves a ceaseless and boundless search for down liners on the commission feeding chain below, a practice which leads to the necessity for these types of open and constant business solicitations. A subscriber purchases the goods on an inflated price and he tells others about them. Rather than sending these people to distributors, he becomes a sponsored distributor himself for these new people. And if these people, say they are five, know five other who will buy the product, he has 25 people buying products through him. If these 25 each know five people, he will have 125. If those 125 know five people, he will have 625 at the fourth level buying through him in a distributor's network he built from only five people. If these people purchased only Rs.300 worth of products every month that would be Rs.30,00,000 in gross sales, and the main subscriber could expect to earn at least one quarter of that figure, probably much more.
How MLM works?
MLM is, in many ways, different from the conventional business. In conventional business the profit is earned by the person who directly sales the goods (or provides the services) whether he may be a distributor dealer or retailer. In MLM even after your transaction is over you earn the profit from many levels of your down liners.
How do you get this amount? From what account you are paid these commissions?
MLM works on a very simple principle. Collect the money from down liners and pay them to a few who coincidentally managed to reach the top. An exponential growth relationship is maintained between successive generations of down liners and one hundred are recruited to pay for one and ten thousand are required to pay for one hundred and so on. Those few at the top rob the future to pay for the present (by promising those at the bottom of the pyramid that over time they can rise to the top to make big money by building new layers at the ever-increasing bottom). For each rupee that someone at the bottom spends, 25 paise is being put into the pyramid (since that is the amount kicked back to the top person) and is distributed throughout the pyramid levels. Though the profit is promised for every body, by design it is only for those at the top. More elevated the position you have in the pyramid, more are the chances for profit and as the pyramid line goes down, profit becomes less probable, becoming almost nil when the down line becomes saturated. The result is that those at the bottom must lose (not by chance but by design). The only way to win in this scheme is to enter early or to become a master manipulator and deceiver of those you enrol. There's a loser in this game. The trick is not to let it be you. As the base reaches maximum size, it can keep operating by continuously enrolling replacements of the losers who are cycled in and out.
Since every product in the market has its saturation point the MLM products must also have.
In conventional business the manufacturer keeps on changing the size of its production keeping in view the available market potential thereby bringing the production size to a rational level when it reaches the saturation point. In the MLM since there is no controlled and regulated mechanism of marketing they keep on producing and may reach to saturation point at any time. At the saturation point since the last line can not find the next successive down line it becomes ultimate loser. Even at this point, MLM system keeps on working by continuously recruiting the new replacements to the last line losers. So if a hundred down liners are required for an aspirant to have moderate income, those hundreds will require ten thousand. It means just fifth generation will need a down line size much larger than the entire world population!
Rather than selling product directly, MLM distributors are made to sale in the hope for a down line commissions. Recruits hope to recruit others to build down lines, thus creating a pyramid. Success for everyone is impossible within a multilevel structure. There aren't enough human beings in the world to recruit. Actually, the market interested in joining a network is small--perhaps 15 percent of the population--which leaves late-coming distributors in the dust. It means that the scheme by design intends to benefit a few at the top at the cost of the losses of millions of innocent down liners.
The most successful MLM scheme is Amway.At the turn of the century, the average Amway distributor earned about $700 a year in sales, but spent about $1,000 a year on Amway products. Distributors also have other expenses related to the business, e.g., telephone, gas, motivational meetings, and publicity material (Amway.com; Klebniov 1991).
Since it is a person to person marketing, human relations are exploited to build up a down line. So one exploits the familial or other personal trust his nears and dears have in him to force them to become part of his down line and pay for his profit.
Moreover, in MLM the emphasis is not upon the product, it is only upon making down lines and earning profits. People purchase the product not to consume but to build successive down lines and earn the profit.
Islamic Business Laws
Broad-based economic well-being, social and economic justice, and equitable distribution of income and wealth is the primary objective of Islamic economics. Islam intends to ensure the flow of wealth from rich to poor and adopts the means to prevent the concentration of wealth in a few hands.
It (wealth) may not merely make a circuit between the wealthy among you (Qur’an 59:7)
The intense commitment of Islam to brotherhood and justice makes the well-being or ‘falah’ of all human beings the principal goal of Islam.
Among the most important teachings of Islam for establishing justice and eliminating exploitation in business transactions is the prohibition of all sources of unjustified enrichment.
Islam has allowed business transactions subject to certain conditions. These conditions are to ascertain fair dealings and to ensure that aforementioned basic concerns of Islamic fiqh-ul-mua’amilat (Business laws) are being properly addressed. Some of such conditions are as follows.
1. All business contracts should be fair, explicit and transparent. Islamic Shariah has explicitly forbidden all those contracts that involve ambiguity and which may result in disputes.
2. All relevant information should be overtly conveyed and nothing should be concealed. Any transaction made by keeping one party ignorant of any relevant fact, by conveying false information or by fraud or cheating is totally invalid and Haram.
3. No element of uncertainty or chance should be involved in business transactions. Such a contract has been termed Gharar in Islamic law. As Ibn-e-Taimiyyah says, “Baiul Gharariyatanawalu kullu mafihi makhatarah”Any business which is solely dependent on chance is gharar. Gharar has been explicitly prohibited by Prophet SAW
“Rasulallah SAW has prohibited from Gharar” (Ref: Mishkath and Muslim)
“Rasulallah SAW has prohibited from Mulamisa and Munabizah(types of trade which depend on chance)”(Ref:Bukhari-Kitabul Buyu)
“Rasullallah SAW has prohibited from the trading by throwing a stone (Again a chance dependent trade)”( Ref:Muslim-Babul buyu)
The examples of Gharar which are mentioned in the books of Fiqh-ul-mua’amilat are as follows:
i. Selling known or unknown goods against an unknown price, such as selling the contents of a sealed box.
ii. Making a contract conditional on an unknown event, such as when my friend arrives (i.e. if the time is not specified).
iii. Selling goods without specifying the price, such as selling at the ‘going price’(Ref: Islami Fiqh-(Urdu)Mujibullah Nadvi)
The common factor in all these transactions is that either price or the return being offered is uncertain.
4. If the profit or loss of any party is totally dependent on chance it is called Maysir and this transaction is Islamically forbidden.
‘They ask thee concerning wine and Maysir, Say “In them is great sin, And some profit for men:But the sin is greater than the profit”’(Ref; Quran 2:119)
Gambling, casino, lottery etc. are different manifestations of maysir. The prohibition of maysir arises from the premise that an apparent agreement between the parties is actually the result of immoral inducement provided by false hopes in the parties’ mind that they would profit unduly by the contract.
5. Money should not be used as a commodity to be sold or purchased. Riba or interest is completely prohibited under Islamic law. Riba is a prominent source of unjustified advantage, because Shariah does not consider money as a commodity such that there should be a price for its use. Money is a medium of exchange in an asset oriented economy, and a store of value.
6. There should be no element of injustice to or exploitation of any party. Islam urges to ensure justice to all parties in a transaction. Any element of injustice to any party makes the entire business transaction invalid. No party should be made to accept unjust conditions and, ignorance or needs of any party should not be exploited.
7. Trade should not be based on false propaganda and fraud. This has been termed in Hadith as Ghassh or Musarraat. And it has been explicitly outlawed.
8. There should not be unnecessary extra agencies in between the trader and the buyer. The product should reach to the consumer through minimum number of intermediaries. In many Ahadith Prophet Muhammad SAW has prohibited from becoming extra medium between the consumer and the merchant.
In short any business transaction which involves the elements of selfishness, greed, surrender of collective social interest, fraud, speculation, ignorance, exploitation, money trade etc. is against the spirit of Islam and hence forbidden

Is MLM Islamically Wrong?
Many of the aforesaid invalid factors are involved in the MLM or network marketing. The network marketing can not be said to be Halal because,

i. It does not come under any of the allowed business practices. It is not a simple Bai’ because the purchaser of the goods receives profits for the purchases made in his down line, it is not partnership because profit is not proportionately shared among share holders and it is not even commission agency because commission is not being paid just on direct sales.
ii. The goods are sold on an inflated price. Without which large amounts of profits can not be paid to many levels of the marketing pyramid. But a common customer is made to believe that he is getting the goods at the normal market price. This is in contrast to the aforesaid Islamic principle that the customer should be made aware of all the details of the contract in a fair manner.
iii. A sort of maysir (Gambling) is also involved in this. Prohibition of maysir arises from the premise that an apparent agreement between the parties is in actually the result of immoral inducement provided by false hopes in the parties’ mind that they will profit unduly by the contract. Here also money is being collected from many down liners to pay one up liner much similar to that in Maysir.
iv. Fraud is also involved here. A large number of down liners are designed to be losers. Without their significant loss up liners can never earn the large profits. This fact is hidden from the customer who is paying in the hope that he will be able to earn what the up liners are earning, which is in fact never possible for him because since he has joined late he can never acquire the top profit earning position in the pyramid.
v. Without getting their clear consent, down liners’ amount is paid unjustifiably to the up liners. It is against the basic notions of Adal which is among the basic objectives of Islamic Shariah.
vi. Though the products are sold, in the MLM, no body is interested in the actual products. As it is widely believed, products are just used as shadow business. People are actually interested in the money and profit involved. So this is a trade where nobody is interested in the actual goods being sold or purchased. Actual business is that of money, that means the speculative capital, which is not allowed in Islam.
vii. False propaganda is among the most important elements of this marketing strategy. Through one to one gossips and motivational seminars people are made to believe that every one can equally get benefited from this scheme. While the fact is that the scheme is designed to benefit only a few at the top at the cost of millions of down line losers.
viii. The basic notion of MLM is not ethical. A true business involves providing goods or services at a profit. A true franchise business involves setting up multiple businesses that all provide goods or services. The MLM business reaps its "income" from the kickbacks received by those up liners for having many consumers down line paying premium prices. This "income" is not earned because the "earner" does nothing to add value to the goods that are sold, unlike the standard distribution system where middlemen are responsible for making the goods available to the consumer
ix. The scheme stands on the greed, the materialism and the urge to earn maximum with minimum efforts. All these are false motivations that are exploited in the MLM scheme. Instead of the quality or usefulness of the product the greed for unlimited money is the main motivation for the customer to purchase the product. Motivated by the voracity and miserliness the average customer is, many times, forced to buy the goods that he does not need and some times in such a large quantity that they remain unused. This is the consumerism of the worst kind and a deceptive way of selling the products.
x. There are unlimited number of mediums between the manufacturer and the consumer. Unlike in the conventional business where number of mediums is kept minimal by market compulsion, here the scheme itself is designed in such a way that even in a small locality the goods can pass through many mediums before reaching to the final consumer.
It is part of a greater design
MLM is not simply a forbidden business transaction. It is a part of a broader capitalist scheme which is at diametrical variance with Islamic economic order. The objective of this scheme is to strengthen the global supremacy and all round hegemony of certain big forces by concentrating the wealth from all over the world into a few powerful hands. This capitalist scheme has many tools in hand. Interest based financial institutions, credit system; speculative capital and its huge transaction etc are all very infamous means they have been using so far. MLM is their latest innovation towards this objective. Through MLM, like the other tools, they are convincing millions of common people the world over to come up with their money and to invest them with great dreams which can, by design, never be realised, in a venture which is solely designed to shift the capital to a few ‘top liners’. So the graveness of the crime called MLM gets multiplied many times when one looks realistically upon the hidden agenda and the main capitalist motives behind.
So as believers in Islam and as people having firm commitment to the values of justice, equality and support to the poor and the deprived enshrined in Islamic Shariah, it is the duty of Muslims to not only keep themselves away from such misguiding schemes but also to stand up firmly against the spread of such evils.
Kunu Qawwamina bil qisti wa shuhada-aa lillah (Qur’an) Become one who stands for justice and witness for Allah .


* * * * * *