The multi-level marketing system (MLM) is a fairly popular scheme for attracting users to projects and products in many different directions. MLM campaign participants do not need to have start-up capital for business development, they do not need high competence in matters related to the project. The profitability in the form of bonuses or commissions from sales can be very high, and therefore the popularity of this type of marketing remains in demand. With the development of blockchain technologies and the advent of cryptocurrencies, MLM has found application in this area. But can muslim participate in such work schemes? We are looking into this article.
ELEMENTS OF MLM THAT COMPLY WITH SHARIAH LAW
Muslim theorists agree that transactions made in MLM comply with Shariah law, will correspond to the essence of Islamic muamalat contracts.
Muamalat (also muʿāmalāt, Arabic: معاملات) are transactions that are part of Islamic jurisprudence or Fiqh. Muamalat provides much of the foundation of Islamic economics and the tools of Islamic finance dealing not only with the legitimacy of Islam, but also with the social and economic consequences and justification of its prohibitions.
The broad definition of muamalat does not apply to all aspects of property and money in Islam, since zakat – the obligatory giving of alms, which is one of the five pillars of Islam – is part of Fiqh. Muamalat defines the conduct of economic activity in the economic system, which ultimately sets the rules for the commercial, financial and banking systems of Islamic finance.
From the point of view of the concept of Islamic finance and transactions carried out within their framework, MLM is a new form of activity in which a purchase and sale transaction occurs between a company and a buyer who will later become its distributor, having fulfilled additional terms and conditions established by the company. These sales are carried out by mutual consent, without elements of force, coercion or manipulation. Such forms of transactions apply to any types of goods and services that do not contradict the principles of Islam and Shariah and are permissible for a Muslim.
Here are a few basic principles by which MLM activity can be considered permissible in Islam.
1. The goods/products sold must be the legal property of their owner from the point of view of Shariah
2. All parties involved in the MLM process must have full legal capacity to conduct transactions, mutual consent and authority in relation to the subject of the transaction.
3. Remuneration in the form of a bonus or a percentage of the transaction received by the seller from the company’s activities should be unchanged, taking into account the cost of the goods / services, known in advance and beneficial to both parties.
Elements of haram that can exclude the activities of Muslims in MLM companies are common elements of Haram that contradict the principles of the Islamic transaction. They include such elements as riba, garar, gambling, violation of the basic terms and conditions of the contract, injustice against a less protected party, fraud (tadlis), deception (tagrir) and the use of the principles of a financial pyramid in MLM, when one of the participants has more rights or more income compared to the other a participant.
WHEN SHARIAH IS AGAINST MLM
1. Double deals
The existence of two transactions (or two academies) is considered a gross violation of muamalat. This happens when distributors register with an MLM company and pay a certain amount of money for the registration fee, as well as for the company’s products. In this case, the fee paid cannot be accurately determined. When this happens, we can say that two contracts have been concluded, the fulfillment of which in equal and fair conditions is impossible.
2. Excessive overpricing
Another common problem in MLM. It consists in the fact that products or services are sold at an inflated price. For example, some MLM company sells a product received from the company for $ 100, for $ 200. Such activities are prohibited. Islamic transactions prohibit the resale of goods with a margin above one-third of the market price.
3. Commission and bonus
The payment of income in this form does not contradict the principles of Islam and Shariah. There is no direct prohibition on granting (commissions / bonuses) or a certain percentage to anyone who is entitled to receive them in accordance with the concluded transaction.
But the commissions or bonuses paid should be based on the rules of Shariah and correspond to the concept of muamalat, such as ujra (salary), al-Jwala, hiba, etc. Commissions should be paid strictly after the completion of the work, which should be clearly described and agreed upon. The bonus or commission provided must comply with the conditions of al-Jwala, such as they are provided on the basis of work or benefits contributed by the distributor to help the company. A company using MLM as a strategy for promoting its product must specify the amount of the bonus.
In addition, there are other principles of Islamic muamalat that should be followed. For example, the bonus should be paid out of the profit from sales or the contribution of the company, and not from the fees charged to the participants. It is also important to note that the product sold must be permitted (Halal) and not contain prohibited (haram) elements such as riba, garar, fraud and others.
4. MLM and pyramid schemes or money games
A pyramid scheme is a scheme in which the lower pay the higher. Each new participant must pay the registration fee, and the amount paid will be transferred to the higher owner of the scheme, then the lower line will find another new participant below him and will profit from the amount that the new participant paid for joining the scheme.
Registration and payment of fees in this type of business is not to sell and buy products, but to find lower-level links. This type of business has elements of riba, gambling and garar.
Since the operating system and organizational network of MLM are very similar to the scheme of a financial pyramid, there are opinions according to which they both have the same origin and, therefore, both are haram. Moreover, many believe that MLM is absolute and unconditional haram. However, it is necessary to clearly separate MLM, financial pyramids and the activities of companies engaged in money games, but using MLM as a cover, thereby misleading and creating confusion among consumers.
MLM COMPLIANT WITH SHARIAH
Having discussed the factors influencing the Halal and Haram aspects of MLM campaigns, I would like to emphasize the importance of taking these factors into account for the possibility of Muslims participating in MLM. In conclusion, let’s pay attention to the main points that should be taken into account.
1. An MLM company must ensure that the corporate culture, production activities, marketing operations and accounting system correspond to Islamic finance.
2. An Advisory Group should be formed for an MLM company, which would include Islamic scholars, as well as those who are well versed in Islamic economics.
3. The contract or aqad in the MLM transaction must comply with the basics and conditions of the Islamic muamalat, such as the use of the contract of sale, musyaraka (partnership), ujra (salary) and others.
4. The purpose of the company should be to conduct business by selling a product or services actually offered.
5. The products of an MLM company must be halal and useful from the point of view of Shariah and in no case violate its prohibitions.
6. The MLM product should be presented in an understandable form, without hiding its shortcomings or weaknesses and without putting consumers in the dark about such shortcomings.
7. Transactions in MLM should not be related to fraud, deception, injustice, monopolization of the product and extortion.
8. The price of an MLM product should not be used and sold to naive consumers at an inflated price if they do not know/cannot find out about its real value.
9. Participants or distributors should be given the freedom to terminate the contract without imposing unreasonable fines on them.
10. The distribution of bonuses and commissions should be transparent and fair and not create any injustice towards other participants.
Although MLM is a system created in a non-Islamic environment, it may well be adapted for use by muslims, subject to certain rules and standards of Islamic finance. All existing and emerging inconsistencies and problems should be solved on the basis of the rules of the Holy Quran, the Sunnah, as well as the opinions of authoritative Muslim scholars.