Fatwa On Multi-Level Marketing Schemes
By : The Permanent Committee in Saudi Arabia for Research and Fatwâ|
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-nasîah: 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:
Allahs 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
Chairman:
Sheikh `Abd al-`Azîz Âl al-Sheikh
Members:
Sheikh Sâlih al-Fawzân
Sheikh `Abd Allah al-Ghudayân
Sheikh `Abd Allah al-Mutlaq
Sheikh `Abd Allah al-Rakbân
Sheikh Ahmad al-Mubârakî
[taken from www.zaharuddin.net (Penasihat Syariah Dalaman, Asian Finance Bank,
Zaharuddin Abd Rahman) ]
[Non-text portions of this message have been removed]
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