Fatwa: Pyramid Marketing

As-Salaamu ‘Alaykum

Fatwa from the Standing Committee
on the “Business” and “Hibbat al-Jazeerah”
Companies and Pyramid Marketing Schemes

Question:

The Standing Committee for Academic Research and Issuing Fatwas has
received many questions about pyramid marketing companies such as the
“Business” and “Hibbat al-Jazeerah” companies, whose work may be summed
up as being the attempt to convince a person to buy a product on the
basis that he will also convince others to buy; they in turn will
convince others, and so on. The more levels of participants there are,
the more the first person will gain in commission, reaching thousands
of riyals. Every participant convinces others to join in return for a
large commission, if he is successful in getting new customers to join
his list of members. This is what is called pyramid marketing or
network marketing.

Answer:

Praise be to Allah.

The Committee replied: This kind of dealing is haram, because the
purpose of this dealing is to earn commission, not to buy the product.
The commission may reach tens of thousands, whilst the product is not
worth more than a few hundred. Any smart person who is offered a choice
between the two will choose the commission. Hence these companies rely
on marketing and advertising of their product which emphasizes the size
of the large commission which the participant can earn, and offers the
incentive of a large profit in return for a small sum, which is the
price of the product. The product marketed by such companies is merely
a screen or a means of earning these commissions and profits. Because
this commission is really the point of the transaction, it is haram
according to sharee’ah for several reasons:

1 – It involves riba of two types, riba al-fadl (involving
exchange of goods of the same type but of different quantity) and riba
al-nasi’ah (involving deferred payment of a larger amount than would be
paid if it were paid immediately). The participant pays a small amount
of money in order to gain a lot of money, in other words he pays cash
for cash of a different amount and with deferred payment. This is the
kind of riba that is forbidden according to the texts and to scholarly
consensus. The product which the company sells to the agent is simply a
screen for this transaction; it is not what the participant is seeking
and it makes no difference to the ruling.

2 – It is a kind of gharar (ambiguous transaction) that is
forbidden in sharee’ah, because the participant does not know whether
he will be successful in finding the number of purchasers
(participants) required or not. No matter how long pyramid or network
marketing lasts, it must inevitably reach an end, and when a person
joins the pyramid he does not know whether he will be in a higher level
and thus make a profit, or in the lower levels and thus make a loss.
The fact of the matter is that most of the members of the pyramid lose
out, except for the few at the top. So what usually happens is loss,
which is the case of all ambiguous transactions. One of two things may
happen, and it is usually the one that is most feared. The Prophet
(peace and blessings of Allaah be upon him) forbade ambiguous
transactions, as was narrated by Muslim in his Saheeh.

3 – These transactions involve consuming people’s wealth
unlawfully, because these contracts benefit no one but the companies
and some participants whom the company encourages with the aim of
tricking others. This is what is forbidden in the Qur’aan, where Allaah
says (interpretation of the meaning):

“O you who believe! Eat not up your property among yourselves unjustly”

[al-Nisa’ 4:29]

4 – This transaction involves cheating, deceiving and
tricking people, by showing the product as if that is the purpose of
this transaction, when that is not the case, and by enticing them with
the idea of large commission which people do not usually earn. This is
the kind of deceit that is forbidden in sharee’ah. The Prophet (peace
and blessings of Allah be upon him) said: “Whoever deceives us is not
one of us.” Narrated by Muslim in his Saheeh. And the Prophet (peace
and blessings of Allah be upon him) said: “The two parties to a
transaction have the choice, so long as they have not parted. If they
are sincere and open in their dealings, the transaction will be blessed
for them, but if they lie and conceal anything, the blessing of their
transaction will be erased.” Agreed upon.

With regard to the view that this transaction is a kind of
brokerage, this is not true. Brokerage is a transaction whereby the
broker receives payment in return for selling the product, whereas in
network marketing the participant pays a fee in order to market the
product. Brokerage means marketing the product in a real sense, unlike
network marketing where the real aim is to market the transaction, not
the product, so the participant markets to others who will market to
others who will market to others and so on, unlike brokerage in which
the broker markets the product to those who really want the product.
The difference between the two is quite clear.

With regard to the view that the transaction is a kind of gift, this
is also not true. Even if we accept that, not every gift is permissible
according to sharee’ah. A gift given in return for a loan is riba.
Hence ‘Abd-Allaah ibn Salaam said to Abu Burdah (may Allaah be pleased
with them both): “You are in a land where riba is widespread among
them. If you have some right over a man and he gives you a load of
straw or a load of barley or a load of fodder, this is riba.” Narrated
by al-Bukhaari in his Saheeh.

Gifts are subject to the rulings on the reason for which they are
given. Hence the Prophet (peace and blessings of Allaah be upon him)
said, concerning the zakaat-collector who came and said: “This is for
you and this is what was given to me as a gift”: “Why don’t you sit in
the house of your father and mother and see whether you are given any
gifts or not?” Agreed upon.

These commissions are only paid for the purpose of joining the
network marketing scheme, no matter what names are given to them,
whether they are called gifts or anything else. That does not change
their nature or the ruling on them in the slightest.

It is worth mentioning that there are companies that have appeared
in the market which follow the practices of network marketing or
pyramid marketing, such as “Smartest Way”, “Gold Quest” and “Seven
Diamonds”. The ruling on these companies is no different from the
ruling on the companies mentioned above, even though the products they
offer may vary.

And Allah is the Source of strength. May Allah send blessings and peace upon our Prophet Muhammad and his family and companions.

Standing Committee for Academic Research and Issuing Fatwas. Fatwa no. 22935, dated 14/3/1425 AH.

Country Of Origin: Saudi Arabia
Fatawa Issuing Body: Standing Committee for Academic Research and Issuing Fatwas
Date Of Issue: 14/3/1425 H

Note: Standing Committee for Academic Research and Issuing Fatwas. Fatwa no. 22935

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((¸¸.·´ ..·´ Aami
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