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Binary multilevel marketing (MLM) is where the MLM company deals with a number of useful products (clothes, books , health related products) including insurance policy. To enroll in it, one has to purchase some products only one time.

Commission paying system is: Every one will get a fixed amount if he enrolls two new members (left and right to him (its a term used)) and the amount will increase with the number of newly joining members in left hand and right hand side of the man. It may be direct joining of new people by him or by people in his down-line, without affecting the down-line's commission. To get commission everybody has to maintain a 1:1 ratio. When there will be a huge team then there is a maximum pay out limit that is fixed.

Wikipedia

(Image source: Multi-Level Marketing Structure, Wikipedia)

Is this network marketing, in this form, is permitted in Islam?

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The binary system (per se) is certainly halaal. I know, since I have designed and coded an entire binary network marketing system. (On the .Net platform for the curious.) There are a few conditions though.

First, there must be a product involved, and it should not be a money-rolling system. For instance, if the network marketing company is selling, say, mobile phones commonly available for $100 through its network at the same price, then it is halaal. The profitability for both the company and its distributors comes from the fact that instead of -- as in the traditional sales model -- one entity like the retailer pocketing the entire profit, this profit is split up across multiple entities like the company and the distribution chain. Earning commissions is not haraam, even if it is at multiple levels.

Second, the product itself should be halaal. For instance, you may not sell things like alcohol or cigarettes through the network system. This is pretty obvious though and I don't think there's any need to elaborate upon it.

Third, a person should be able to "opt out" without incurring losses. Taking the same example further, after having purchased the mobile phone I can keep using and enjoying the product while also opting not to sell the company's products any further, and still not incurring any losses. In other words, I got what I paid for and that's that.

On the other hand, if a "network marketing" company asks you to "invest" $100 and also get other "investors" to do so, and promises you commissions in return, then know that it is haraam, since I cannot reasonably opt out without incurring a financial loss. If I bring in other "investors," then I may recover my initial "investment," however it will be at the cost of their losses. Other than this, there's also an element of interest involved in this deal.

Fourth, the emphasis should be on selling products, and it should not be a member-making scheme. To take the same example I cited earlier, I may decide to buy a mobile phone from the network marketing company instead of a traditional retailer at the standard market price of $100. This is a fair deal for me, since I have neither made nor lost money, and in any case the mobile phone is easily available elsewhere at the same price.

However, there is a difference in this deal for me in that that by purchasing the phone from the network marketing company, I can also opt into the system that allows me to earn commissions at multiple levels by selling their products. In other words, the company's profitability and their distributors' commissions should come out of product sales, and not from membership fees.

Fifth, the commissions that are accrued upon a sale should end at some time or at some level since the commission amount is only so much. If the system promises unending returns, then know that something's amiss and stay away!

About the term, "pyramid scheme." Most people read "ponzi scheme" when they hear MLM. Ponzi schemes are haraam since they are the commercial equivalents of perpetual motion machines, and they work on the assumption of unending returns. (Read more about it here: http://en.wikipedia.org/wiki/Ponzi_scheme.) Bear in mind, however, that pyramid structures are common in commercial enterprises. For instance, the government itself works like a pyramid, with funds allocated at the top percolating down to the bottom. In fact, most organizations work as pyramids. That's what we mean when we say corporate hierarchy.

Unfortunately, owing to wrong kinds of companies that have cheated people of their monies, terms like MLM and network marketing now come with a tainted image. But a concept cannot be branded as haraam owing to the misdeeds of a few.

Moreover, branding something as haraam just because the popular perception is like so is wrong on the part of the ulema; rather, it has to be studied rigorously and can be termed haraam only if there's no shadow of doubt left that the concept does indeed violate some principle of Islam, and then too the onus is upon the ulema to clearly identify the haraam aspect within that concept. A blanket haraam fatwa does not make it haraam.

My faith is on Allah and His Messenger (SAWS) and not on the ulema.

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    Agreed! I think that's a fairly accurate distinction between a legal and a fraudulent pyramid scheme. – infatuated Aug 12 '14 at 2:52
  • Why someone buys a product from MLM? Expecting returns. Why someone make others buy products from the same company? Expects return. Suppose there are 1000 People in the market. How many levels it can reach? And what the last subscribers from the chain gets? Just the products. Mostly MLM companies are selling products which are not available in the local market and those products have only one way of supply - through the chain. What is the value of a product not available in the retail market if you sell it after realising that it's not the thing you need? That's a lower price definitely. – nabeel Feb 17 at 0:36
  • What I see is a problem at the end of the chain. And when there's a problem in a business chain. It's not halal in my understanding – nabeel Feb 17 at 0:36
  • It doesn't matter. Because if the product is a good one and serves a need, and is priced fairly, the user got what he paid for, though the opportunity itself will not be viable in a (theoretical) scenario like this. – Najeeb Feb 20 at 14:56
  • Check out this article I wrote on LinkedIn: linkedin.com/pulse/3-ps-mlm-viability-najeeb-a-shaikh – Najeeb Mar 18 at 6:25

protected by Community Mar 7 '17 at 16:01

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