ibnlive » Business

Feb 26, 2008 at 03:48pm IST

How multi-level marketing cheats at all level

Is it possible that network marketing firms are flocking to India because they are just not wanted elsewhere? CNN-IBN found that the British Government has sued Amway for unethical practices., China banned all forms network marketing in 1998, Sri Lanka, Nepal, and Australia have also tightened the noose.

But in India, MLMs have managed to skirt between the legal loopholes.

While ads promise exaggerated incomes make claims in magazines and newspapers, not everybody’s dreams come true.

Case Study 1: Santoshamma

Santoshamma is one of them. She ploughed her dead husband's monthly pension of Rs 2,000 into an MLM dream floated by Quantum International Pvt Ltd, even paying the enrolment fees for those she recruited.

“I lined up 15 members, I persuaded them. I even paid on their behalf. But nothing came of it. I lost Rs 40,000 rupees, I got nothing. I am a Christian. I have these Sri Yantras. I bought four Sri Yantras. They cost Rs 8,000,” she says.

She bought a 'Spatika Mala' instead of soap as Quantum assigns these beads greater Commission Value (CV).

Says Santoshamma, “They told me, I was one point short of travel to Malaysia. That’s why I should enroll two or three more persons, so I made another two persons join.”

Editor, Pelli Patrika, Krishna Mohan says it’s looting the poor. “A lot of indigenous Amway likes are emerging on a day-to-day basis and are looting the poor, gullible, innocent people,” he says.

CNN-IBN Investigation approached a police officer who bust an MLM outfit-the mattress selling Japan Life India. The officer explained how MLM operations in India are in fact, illegal.

Says IPS, Vishwanath Sajjanar, “Way back in 1978, the Central Government has banned all money circulation schemes by whatever names they may be called, whether you call network marketing or multi level marketing or direct marketing. The very running of money circulation scheme is illegal in India.”

Multi-Level Marketing was banned in 1978. The Prize Chits and Money Circulation Schemes (Banning) Act bans “money circulation schemes” in all forms - Multi Level Marketing, Network Marketing and Direct Marketing

A recent Andhra Pradesh High Court judgment in a case involving Amway has held that its business is illegal, calling it a Prize Chits and Money Circulation Scheme that have been banned since 1978

In response, Amway continues to maintain that. "It is a legal and ethical company doing business in public interest,” says in a statement. (Source: andhranews.net July 2007)

Says Sajjanar, “Even in Supreme Court, an SLP has been dismissed of Amway company where it was clearly held that Amyway is nothing but money circulation scheme, falling into the mischief of this act.”

In 2003 and 2004, the Madras High Court also declared such networking schemes illegal.

Says Sajjanar, “Copying them many Indian companies have started, saying this model is accepted. When there is no action against them they can also do.”

On ground, consumer activists are trying to do their bit

Says Secretary, Public Alert Sewa Society, Manda Bhiksham Raju, “High authorities from firms involved in this business are forcing me (my society) to withdraw complaints.”

Raju's job is tough. MLM firms know the allure of quick money is hard to resist.


Case Study 2: Yesamma

Yesamma was told network marketing is as simple as making and selling idlis. An idli-dosa vendor making 1500 rupees a month, Yesamma spent 15,000 rupees buying up Quantum products.

He believed a Certificate of Incorporation was a personal insurance cover the company gifted her.

“My children warned me, but the insurance attracted me,” she says, adding, “They told me this is an insurance document.”

Her commission statements of Rs 2 tell the story of the high failure rate in such enterprises. When CNN-IBN approached Quantum, the Company refused to comment.

Most “victims” of network marketing we met in rural Andhra Pradesh were not even aware of their legal rights as consumers. We also found that the law too is reluctant to act.

There is also ample confusion within the Government on the legal status of multi level marketing firms.

In December 2002, the then Minister of Consumer Affairs, Srinivasa Prasad, told the Lok Sabha that multi-level marketing schemes are legal.

But on the same day, the then Minister of State for Finance, Anandrao Adsul, told the Lok Sabha that such schemes were in fact illegal and should be investigated.

The Reserve Bank of India too has done a flip-flop on this. In 2001, it declared the MLM schemes of Japan Life illegal. But in February 2003 it changed its mind.

Like millions across the world, they too fell for the sales pitch, lost time money and effort chasing an illusion.

Says software professional, AVS Satyanarayana, “Finally we know this is not worth the time and money we spend but because to support our people who are really mad for it.”

Agrees another member, Dr Umamasheswara Rao, “It is not a gambling because gamble is designated as gambling, prostitution is designated as a prostitution, this is shown as a business it is not a business.”

Mathematics and common sense will tell you that losing money in network marketing is not because you failed.

Chain recruitment tends to favor those at the top of the heap. But most - and that could include you - do end up at the bottom.

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