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Subject : Ruling on Network Marketing
Fatwa Number : 644
Date : 22-04-2010
Classified : Current Financial Issues
Fatwa Type : Search Fatawaa

Question :

We received an offer from a company called Quest and located in Hong Kong to work with them via network marketing. This type of marketing relies on selling a product from the factory to the customer directly without paying any commissions to brokers. The participant works for the company through promoting its products to others. He receives commission against the number of customers he manages to bring. For example, Zaid bought a watch from the company for (500 $) and this is much higher than its market price. Once Zaid bought the watch and paid (10 $) as registration fees, he became an active member of the company. This is prerequisite dictated by the company and he has also to promote its products orally and convince two persons to join the program. Each of these two has to buy company products and they have the right to receive commission for bringing other marketers. Each marketer is supposed to convince two other persons and so on and each member has to buy the watch to become an active member of the company, in addition to paying the registration fees. This way leads to forming a pyramid shape from participants. Moreover, the company stipulates that the right side of the diagram is equal to the left one so as for Zaid to receive commission and this goes for other marketers as well. What is the ruling of Sharia on this?



The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

 

Network or pyramid marketing, in most of its widespread forms today, and taking commissions for it isn`t considered lawful brokerage. Rather, it is considered a form of forbidden gambling, because participants usually aim to bring as many customers as possible to get a fat reward for that. When a participant brings other customers and meets the conditions of the Network or pyramid marketing company, he gets a commission, which is more or less than the amount he has already paid to participate. However, if he fails to bring customers, then he loses everything and this possibility leads to falling into the suspicion of uncertainty and gambling, which is forbidden by Sharia.

The cause for prohibiting this kind of marketing (Network or pyramid) is that the participant must make payment in advance, whether as participation fee or to purchase a commodity (Watch) that he doesn`t actually need in the first place. Moreover, buying a commodity doesn`t make this type of marketing lawful because the aim is to participate in order to bring as many customers as possible so as to get the fat commission, which could be far more than the price paid for the commodity itself.

However, in lawful brokerage, a broker markets the commodity to a customer who actually needs it while in network or pyramid marketing a participant markets to bring another participant and so on. Even if a participant wanted the commodity itself, the general goal of the network or pyramid marketing company rests on gathering as many participants as possible and alluring the first participants who constitute the top of the pyramid with fat rewards at the expense of the rest of participants who constitute the bottom of the pyramid. In other words, there is a winning minority at the expense of a losing majority. From the perspective of Sharia, this is an act of corruption and corrupting others.

Committees of Sharia and scholars specialized in this type of marketing have pointed out that it involves many violations of Sharia. And Allah The Almighty Knows Best. 

 

 

 






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