Pyramid model/multi level marketing

Pyramid model/multi level marketing

Question

Assalamualaykum, Firstly sincere apologies for the extremely long question.

Schemes advertised as operating on a “Multi Level Marketing business model” such as FM Perfumes, TS Life etc have become a common source of income amongst many Muslims. My query is with regards to there permissibility.

These companies require invidiuals to join the scheme through other existing members (called upliners) & consist of two main duties to generate income: Selling & Recruitment.

1) Selling
Individuals act as representatives, selling to the public. Often sellers order upon demand, AFTER taking payment from the buyer; they cannot guarantee when they will get the items to dispatch to the buyer.

2)Recruitment:
The companies MLM model means individuals join through existing members (upliners). For any sale their team make, the upliner recieves commission.
Those who join can also invite people to work beneath them & so forth (downliners). From each sale the Downliner makes, everyone from the upliners chain will receive a commission.

My questions are as follows:
1) Can one sell items which are not in their possession?

2) Are commission based jobs, whereby one reaps the benefit of others work whom they haven’t directly impacted allowed?

3) Some of these schemes require an initial starter pack to be purchased or a small fee to join – Do such schemes constitute as gambling & are they permissible?

5) Based on the above are we allowed to take part in schemes such as FM perfume & TS Life?

6) In the event of these schemes not being Shariah Compliant, how can the issue be addressed at a national level?

Jazakallahu Khayra


Answer

Multi-level marketing schemes operate in a variety of ways. The ruling would depend on the exact method of trade. Below are a few scenarios discussed by Mufti Taqi in his Fiqh al-Buyuʿ.

1. If the sale of a product is made conditional upon the buyer entering the multi-level marketing scheme, then the sale will be invalid as such a stipulation is not valid.

2. If an individual purchases a product without having to enter into the scheme, then the sale would be permissible provided the sale contract meets all other conditions of a valid sale contract.

3. If the sale of the product is not made conditional upon the buyer entering the scheme, however, the price of the product is inflated over and above market value, then it would not be permissible to purchase the item with the intention of entering into the scheme. The reason for this is that this additional sum is only in consideration for entering the scheme, and even if we were to consider the scheme permissible based on a brokerage arrangement this sum is not part of that arrangement, rather it will be seen as a type of bribe to enter the scheme. Whether the scheme is valid or not under a brokerage arrangement will be discussed shortly.

4. If the product is being sole at market value and entering the scheme is not made a condition in the sale, and the buyer purchases the item with the intention of entering the scheme then the sale of the item will be valid.

As for entering the scheme this will be an independent contract based on a brokerage arrangement and any profits made will be considered brokerage fees. For this reason, the scheme must comply with the rules and regulation of a permissible brokerage arrangement.

Mufti Taqi has highlighted two major issues with such a scheme. Firstly, unlike a simple brokerage it may be the case that the business partner must secure multiple customers in order to receive a commission and will not receive a commission for securing only one customer. The second issue is that there is not a one-off payment for securing customers, rather, there are on-going commissions for each time a customer secures further customers.

One must bear in mind that percentage-based brokerage fee was classically in itself impermissible according to the Hanafi school. However, contemporary scholars, have permitted it, due to it being a customary market practise and also considering that it is permissible in certain other schools of fiqh. The problem is that in multi-level marketing, brokerage is paid in several layers. It is here not as simple as Zayd asking Khalid to find him a buyer of his car in lieu of 10% of the selling price, but there may be more layers below Khalid. Due to the controversy surrounding such practise it is questionable if it can be considered customary market practise. Also, if one is only entitled to payment after securing multiple customers this increases the level of complexity and decreases the likelihood of such practice being customarily accepted.

There is also the element of gambling. If one is paying a sum of money towards the scheme directly, in consideration for the possibility that they will make more money from on-going referrals then they are essentially entering a gambling like arrangement.

It is difficult to issue a general ruling for multi-level marketing schemes as certain schemes may find ways to navigate around the areas of contention. Each scheme and its contract would need to be analysed carefully to issue an accurate ruling. If the above-mentioned contentions apply to a particular scheme, then we would consider that scheme impermissible.

In response to your questions:

1. One cannot sell something which is not in their possession unless they carry out a procurement contract (salam) which is where the buyer pays the seller to source a particular product and sell it to them. There are strict conditions which must be observed in order for this to be permissible. If one is selling as a broker or agent on behalf of the owner of a product this will be permissible.

2. This has been discussed above.

3. This would not be permissible as mentioned above under point three.

4. This has been explained above.

5. Awareness can be created through educational videos, articles and public sermons.

Fiqh al-Buyuʿ 2:812-815

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel