Assalamu alaikum wa rahmatullahi wa barakatuhu! Saudi Arabia – Multi-Level Marketing Is Described as Harram Reasons For Forbidding MLM To back up his position against MLM, Dr. Al-Bahith cites a fatwa (number 22935) that was previously issued in Saudi Arabia. The fatwa alludes to MLM companies promoting their products to the marketers/ distributors by focusing on the huge commission they could potentially earn. Such an approach is objectionable on several grounds: •Firstly, MLM involves a type of ‘Gharar’ activity, i.e. ambiguous transaction that is disallowed under Sharia law. After paying the MLM company a sum of money to join its marketing network, a distributor does not know whether he will find sufficient customers to sell to, and/or whether he can recruit enough lower-tier marketers in order to benefit from the sales that they make. Thus, MLM preys on profit ambition that could have dire financial outcome if unrealized. •Secondly, MLM involves unlawful consumption of wealth under Sharia law. This is because people are enticed into parting with their money and becoming distributors by the prospect of huge profit that may not crystalize. Such a business model is un-Islamic, as it is has said in the Quran that Muslims should not unjustly eat up properties that are among themselves. •Thirdly, MLM involves trickery. Ostensibly, a MLM company is selling its products as if they are the purpose of its business. However, ‘customers’ often buy these products not to meet their consumption needs, but in order to become distributors. In turn, they lure others to become their distributors by promises of large commission income. This is downright deception, which Prophet Mohammad had warned against by declaring that “(w)hoever deceives us is not one of us”. Track Record Of MLM Is Not Flattering Religious doctrine aside, there is evidence that MLM is a less than an ethical business model: •In cases against MLM companies in the U.S., many have been found guilty of making exaggerated income claims pertaining to their distributors. •Empirical evidence has shown that the vast majority of MLM distributors suffer financial setbacks. Based on available data from MLM companies themselves, over 90% of their distributors have lost money after subtracting all expenses including purchases from their companies. •The many layers of marketers each taking a cut for their selling efforts often result in vastly inflating the prices of MLM products. This means poor value-for-money for their consumers, including include the distributors who must first buy the products to have the ‘privilege’ of distributing them. It would therefore appear that Dr. Al-Bahith’s reminder of the anti-MLM fatwa is appropriate and fair. Think About It International Fatwa on Multi Level Marketing 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-nasî’ah: 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: “Allah’s 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
Posted on: Sun, 24 Nov 2013 09:26:00 +0000