What is Shariah View on Multi Level Marketing/Network Marketing?

Question

Nowadays, a lot of people are involved in Multi Level Marketing (MLM).

In MLM Business have sponsor and recruiter. When sponsor recruit some people under him, The recruiter/new joiner will pay some amount as joining fee. The sponsor will get commission( it is also said as referral marketing). Some marketing plan also get up-line commission(3 to 10 level sponsor up-line etc). Commission structure depend on business plan. Multilevel Marketing or Network Marketing consist of lot of Marketing Plan like Binary, Matrix, Investment etc.

What is the Shari'ah view on Multi Level Marketing? Is this marketing phenomena acceptable in Islam?

Answer 1

I did a quick Google search for you. Here's an excerpt from the well-known fatwa site islamqa.com :

The Committee replied: This kind of dealing is haraam, because the purpose of this dealing is to earn commission, not to buy the product. The commission may reach tens of thousands, whilst the product is not worth more than a few hundred. Any smart person who is offered a choice between the two will choose the commission. Hence these companies rely on marketing and advertising of their product which emphasizes the size of the large commission which the participant can earn, and offers the incentive of a large profit in return for a small sum, which is the price of the product. The product marketed by such companies is merely a screen or a means of earning these commissions and profits.

The rest of the answer can be found here

Answer 2

I'm not making a fatwa, but in all honesty I don't think many scholars understand this business completely. I personally don't see why it is haram (of course depending on what the MLM promises).

For example, there is currently one where you can earn a commission to refer people to a product that Really Works - not something fake/scam - it can really make them money online. So to give you an accurate picture of how this works: In essence, I'm coming to the product owner, affirming that his product is worthy/genuine, then bringing people whom are Interested in purchasing this to him. So in return for bringing these people, the product owner is paying me a sum fee for my Service. In reality I'm a service provider, I bridge the gap between the product owner and the masses who like his product. Now of course I'm not saying every MLM is halal, as there are many that rely on scams which aren't allowed.

Again, I'm not giving a fatwa but I'm putting my opinion out there because I believe many scholars don't fully understand this business model.

Answer 3

I agree with @Abbas' answer that many scholars most probably do not understand this business in its totality. As such giving a blanket fatwa that it is haraam may not be entirely correct.

To understand why I think network marketing is entirely halaal, let's take an example.

Assume that A is a product manufacturer, and there's B, a customer who needs the product. Let's say that he sells the product, which is market-priced at $1000 for $800. So now as a customer B is entitled to use it for either his own purpose or sell it to his neighbor/friend at the market price and pocket the difference. Nothing wrong Islamically with that.

A however also gives B the right to introduce others into the business, since B is also a its qualified distributor. This brings into effect another component within the pricing structure of the product: the compensation plan. The amount for this compensation is included within the distributor's transfer price, in our case $800.

When B introduces his friend C into the plan, A pays B a commission for introducing someone else to the company as a customer and potential distributor. Again, nothing haraam in this either. AFAIK earning commission is not haraam. C is said to have becomes B's "downline."

Next, let's say C too likes the product and he introduces his friend D to the company's product, and now C will also be compensated for introducing his friend, but then even B will also benefit since though he may not know D directly, by virtue of the fact that D is his downline's downline, he will get its financial benefit. Again, there doesn't seem to be anything haraam in this either.

The whole reason for the manufacturer using network marketing to promote his products includes:

1. The product may require a bit of expertise to use, and a distributor, once adequately trained, can train his own downlines in the use of the product. This may not be possible in a conventional distribution model.
2. The distributor may not want to use conventional channels for distributing his product. This includes multiple overheads in the form of a national distributor, right down to the local retailer. At each level the price has to be marked up to accommodate them. This also includes advertising and hiring expensive celebrities for the purpose. By eliminating these middlemen, he reaches the consumer directly and avoids paying hefty fees to them. This elimination of the middleman is known in supply-chain parlance as disintermediation.

What makes the plan viable is that the higher you go within the network, the commission per introduction reduces dramatically; however that is compensated by the fact that the higher you are, the "wider" your downline structure gets. Typically compensation plans use a logarithmic scale for calculating the amount made at each level. At all times, the amount disbursed per sale is the same, only the amount received as commission and the number of payments change at each level.

Insofar as joining a network marketing company for earning commissions or just plain using the product, it's a matter of neeyah (intention) and I don't think even the Prophet (SAWS) was given the right to suspect anyone's intention. And even if the intention is to earn a halaal living for oneself, there seems to be nothing haraam in that.

Again, there are other factors like the product should not be haraam (naturally), and the scheme should not be Ponzi in nature, which essentially means that it should be viable for the manufacturer to pay commissions to everyone based on precise arithmetical calculations and should not be sold to potential distributors as an unending compensation plan, which as we all know is not mathematically viable. Even if the network runs at "full load," so to speak, and every distributor has to be paid in full, the manufacturer's calculations should not go awry.

If you are planning to join a network marketing company, I would recommend that you do the following:

1. Check the product: is it halaal beyond any shadow of doubt?
2. Understand the compensation plan to the best possible extent. You may even take your neighborhood Geek or Math genius to understand the compensation and explain it to you.