Usually when we update the blog posts, we summarize the content of each lecture or program to fit the objective of the program while hoping to give a precise review of what was delivered. Alhamdulillah for this particular content because not only did the speaker deliver an awesome lecture, but he had voluntarily made a (text)copy of his lecture readily available for us.
We are really grateful for this and truly appreciate his hardwork. Allah bless him much.
So here is MLM in the words of Jubril Salaudeen, enjoy...
Multi Level Marketing (MLM) is not very popular in Nigeria; it is used not only in promoting
consumer goods but also in promoting financial instruments such as Insurance, FMCG,
Pharma products among others.

The scholars and Multi Level Marketing
I wish to address the questions regarding MLM and Shariah issues.
Initially I tried to shun away from the questions because there was just too
many MLM structures and this would make it difficult for anybody to provide a
clear Shari’ah injunction regarding the matter also there are huge
un-employment Gap in Nigeria that I don’t know how to begin. In addition, there
are a lot of people who are currently involved in MLM and most of them, seem to
be ‘fanatic' and very confident that the MLM structure and the income generated
from it is Halal.
In addition, there seems to be a number of Shari’ah and Islamic studies
graduates that promote various products using these MLM schemes. To add some
spice and flavour to their promotion, these groups would claim that MLM is
halal and they would quote various proofs from Al-Qur'an and Hadith that
encourage Muslims to do business and improve their economic condition. As a
matter of fact, the ‘evidences' quoted by them is general in meaning and does
not provide specific verification of MLM and their pyramid scheme.
To be honest, there are quite a number of people influenced by the
campaign of these groups of ustaz and ustaziah. These people join the MLM
schemes without any second thoughts whether it is halal or haram just because
it has been approved by an ‘ustaz'. Therefore I would like to remind all the
Islamic studies graduates to be more prudent in giving out any injunction and
to carry out detailed analysis before promoting and claiming that MLM is halal.
The opportunity to make sky-high profit in MLM scheme should not overshadow our
opinion and the injunction we put forward. This reminder is vital as there are
a lot of people who exploit the endorsement by the ‘ustaz' to advocate their
MLM. Al-Laith bin Sa'ad said: "If the people with the understanding of
halal and haram reviewed this problem, they would not endorse it as there is an
element of gambling in it"
(Narrated by Al-Bukhari, no 2346). Sayyidina Umar al-Khattab r.a
reminded us:
لا يبع في سوقنا إلا من قد تفقه في الدين
"Do not trade in the markets unless you have full understanding
about religion and trading." (Narrated by Tirmidzi, no 487, p 129; Albani:
Hasan)
I believe it is best to share a general guide of Shari’ah and issues in MLM so it could serve as a reference
to help the general public make proper decision before they drown deeper into
the quicksand of MLM. However, one has to bear in mind that this general guide
is not meant to condemn any specific MLM brand or structure that exist either
in Nigeria or overseas. This guide only provides an overview and highlights of
several Shariah issues regarding MLM.

MLM practices : Between Haram and
Syubhah
MLM that employ these schemes in their operation is clearly prohibited
(haram) or Syubhah in Shariah:
1) Inflated Selling Prices: Some
goods and services sold through MLM network are traded at higher prices
compared to its market prices just to ensure the MLM companies enjoy a higher
rate of return and are able to pay commission to their distributors. This
practice is not recommended in Islam and according to some jurists this kind of
contract is null and void. This practice is known as ‘Gabhnun Fahisyh'.
However, there are differences of opinion regarding this practice. Some
scholars say it's permissible (harus); some say it's undesirable (makruh) while
others say it's prohibited (haram). (Durar al-Hukkam Fi Syarh Majallah
al-Ahkam, clause no 356, p 369). Nevertheless, Prophet Muhammad SAW has
indicated that selling goods at inflated price to those who do not have adequate
knowledge regarding the pricing of goods is a form of oppression. (Al-Qawaid,
Ibn Rusyd, p 601)
2) Sales target as a pre-requisite
for commission payment: Usually, in addition to the membership fee, MLM
companies would set a minimum sales target for the upline if they would like to
enjoy any commission from the sales of their downline. If they fail to achieve
this target, their membership maybe terminated or they would not be entitled to
receive any commission although their downline has transacted a large amount of
sales. Every MLMs that has this kind of pre-requisite would face some Shari’ah
issues because this pre-requisite is a form of oppression. A policy that states
"You must maintain a monthly personal sale, say 500 naira in order for you
to enjoy the commission from your downline's sale" involves a conditional
sale where the condition is set to the disadvantage of the member. This policy
implies a form of coercion.
Generally, commission that is earned through sales of goods and services
(like brokerage fee) is permissible (harus) in Islam; this is the opinion of
prominent Muslim scholars like Muhammad Ibn Sirin, ‘Ato' Bin Abi Rabah, Ibrahim
an-Nakha'ie and many more (Sahih Al-Bukhari ; Al-Musannaf, 5/242 ; Mawahibul
Jalil, 4/452 ). However, the commission in MLM and pyramid schemes may convert
to haram status if:
* Sales commission of the network is tied to his/her personal sale. This
condition raises several Shari’ah constraints because it involves oppression,
invalid conditions and gambling like activities. A conditional contract like
this results in unclear task of the agent or broker. If he is only the broker
or agent, why should he be compelled to maintain certain level of sales? This
is an implied coercion stated subtly in the agency contract. Therefore the
nature of the agency contract is ambiguous (syubhah) and thus contaminates the
commission received.
* Commission originates from an unknown downline because the network is
too big. As a result, the upline seem to enjoy commission without the need to
put any effort. This could be classified as compound brokerage (broker on
broker on broker).Compound brokerage falls under the category of eating up
another's property unjustly and has an element of gambling in it. The main
factor that contributes to this is the fact that compound brokerage
automatically implies that a portion from the sales of the downline will be
channeled to the upline.
3) No tangible product for sale: Some MLM
schemes only require the members to register and find more downline without the
need to sell any product. With each new member introduced, the upline enjoy a
portion of the registration fee of the downline. The more new members, one
could attract, the more bonus he or she would enjoy. This is a form of Riba
Nasiah and Riba Al-Fadl because it involves trading of money for more money in
the future.
The same rule applies for MLM that does not have a product of good
quality but only introduces a product for the sake of fulfilling the sales
requirement. For example a product that only involves a web section in the
Internet at inflated subscription price that is of no benefit to the members.
In some cases the member does not even own a computer to utilize the web
section. In reality the member is not interested to buy the product in the
first place. He or she just wants to join the marketing network and earn
bonuses from it. The Standing Committee of the Saudi Arabia Fatwa Council has
classified buying bogus products as a mean to join network marketing in order
to earn bonuses as haram. (Fatwa Council Al-Lajnah Ad-Daimah Arab Saudi no
15/192-193.)
4) Manipulation by MLM company: Some MLM
companies manipulate their product, coerce the member to use their product or
sell haram products. All these activities are clearly prohibited (haram).
5) Two in one contract: There are
also elements of 2 in 1 contracts that is known as "shafqatayn fi
shafqah" or bay'atayn fi bay'ah: This type of contract is forbidden by the
Prophet SAW:
نهى رسول الله صلى الله عليه وسلم عن
صفقتين في صفقة واحدة
"The prophet SAW prohibited two sales in one (contract)."
[Narrated by Ahmad, Al-Bazzar ; Al-Haithami : The chain of narration from Ahmad
is trustworthy (thiqah); 4/84 ]
Two in one contract occurs in MLM due to several factors as below:-
Firstly, the purpose of the initial
membership fee is not clear - is it for the purpose of becoming the member of
the network or is it for the purpose of buying the product.
Secondly, after becoming the member of a
network he or she is automatically appointed as an agent of the company to
recruit more members.
Combining these two factors, the contract would fall in the category of
two in one contract. The first contract involves an exchange contract (‘Uqud
Mu'awadat) where the fee is exchanged with membership right or product
acquisition. However at the same time, another contract is executed - an agency
with fee (Wakalah Bil Ujr) contract - where the member is appointed as an agent
for the MLM to sell its product and recruit new members for a return of
commission. Two contracts - exchange and agency - are executed within one
contract.
The International Fiqh Academy (Majma' Fiqh Islami) has issued a legal
verdict declaring that PT Biznas (a MLM scheme) is haram. The verdict also
ruled that the commission paid is not like a brokerage fee because it involves
activities similar to gambling. (Refer to verdict no 3/24, 17 July 2003). In
addition, Syeikh Salim Al-Hilali also released a verdict prohibiting MLM. He
said: "Many question has been put forward regarding the popular business
(MLM). Generally, it follows the pyramid scheme in its marketing strategy where
each member has to find a new member and so on and so forth. Each member pays a
fee to the company with the objective to attain bonus. The more members one
could attract, the more bonus they would enjoy. Majority of those who join
these companies are motivated by the lucrative bonus offered and hope to get
rich fast. They are not concerned about the product at all."This type
of business is pure gambling because:
Ø In reality, the members of MLMs are not concerned about the product.
They join the marketing network only to attain instant profit via the
membership fee of new members.
Ø The actual price of the product is less than 30% of the price paid to
the MLM company.
Ø The purpose of the business is to develop continuous network of
people. With this network, large number of people at the bottom of the pyramid
(downline) pays money to a few people at the top (upline). In this scheme, no
new wealth is created, the only wealth gained by any participant is wealth lost
by other participants. Each new member pays for the chance to profit from
payment of others who might join later."
It is very rare to find MLMs that does not incorporate the prohibited
activities I have mentioned above. Therefore, I remind all the Islamic unit
trust and Takaful agents to be cautious and not to fall into the realm of MLM.
If you still feel that MLM is halal after going through all the prohibited
activities I have highlighted above, then one should ensure the minimum level
of Shariah compliance of the following:
1. Real sale of goods: The products should have tangible benefit
to the members or users like health supplements of good quality and other
goods. Therefore, goods which have no tangible benefit, of low quality that do
not meet the requirements for a real sale of goods, naturally being used to
hide the pyramid scheme in MLMs and serve as legal tricks to avoid Shariah
prohibition. Therefore, the strength of a MLM should be based on the product quality
and not based on the ability to make large profit out of new members fee.
2. The product is not gold or silver or currencies: Gold, silver
and currencies are ribawi items and should observe strict Shariah rules that
only permit spot transactions. Gold, silver and currencies could not be sold on
deferred basis because it will be tantamount to Riba Nasiah.
3. Commission paid to each member is transparent: There should
not be any commission paid without effort. Therefore an upline is only entitled
to the commission of the downline whom he or she has helped.
4. Commission is not based on number of new recruits: Commission
should be based on the amount of sales that one has managed to achieve. This is
important to ensure that the MLM focuses on real business and is not a mere
money game.
5. No sales target as a pre-requisite for commission payment: There
should not be any form of implied coercion by setting this kind of condition.
6. Every upline should put effort to help their downline: Upline
should assist their downline by arranging for meetings, giving motivation and
explaining sales techniques to their downline. This is important to ensure the
upline is legally (from shariah perspective) entitled to the commission
received. If not, the commission received may be categorized as ambiguous
(syubhah) income. If the network is too big and the upline does not even know
the downline what else to offer assistance, then why should the upline still
attain benefit at the expense of the new member? This would result in compound
brokerage mentioned above.
7. Does not utilize pyramid scheme i.e First In Rich Forever (FIRF)
scheme: The marketing plan should ensure that everybody has an opportunity to
get commission based on their performance and not according to First in Rich
Forever scheme. In FIRF schemes, those who join a MLM company at its
infant/early stage will always gain more as more members join although the new
member is able to sell/perform better than those who join earlier. If it is a
genuine business, a downline who performs better than an upline should be able
to make more profit than the upline.
8. Disclosure of the commission system should be transparent and
understandable: This is to ensure that there will be no fraud and the members
could observe the commission payment easily.
9. Structuring of marketing plan based on partnership (musharakah)
contract: The best way to set up a marketing plan is based on musharakah where
profit and losses in the business is shared according to according to the capital
ratio. The parties should agree upon the profit sharing ratio before entering
into the contract.
Last but not least, I am aware that rulings regarding MLM are not yet
concluded and are still open for discussions. Scholars have pointed out that the MLM issue is still new to them. It is difficult to
find writings of Middle Eastern scholars regarding MLM because MLM has yet to
enter the Arab countries massively. Therefore, it is the responsibility of the
South East Asian and Western scholars to elaborate on this topic to provide the
general public with guidelines about Shari’ah issues in MLM. This short writing
is only a preliminary opinion intended to remind all of us about the ambiguity
or doubtless that is embedded in MLM schemes. Wallahu ‘alam.
Jubril Salaudeen