Understanding the Shariah Ruling on Network Marketing: A Comprehensive Analysis
The Shariah Ruling on Network Marketing
In today’s advanced era, various forms of business are prevalent, one of which is network marketing. It is called network marketing because each member has to recruit other members, leading to an increasing number of members. This system is referred to as a “network” or a “web-like trade.” It is also known as multi-level marketing because each member must recruit others according to the company’s conditions, forming different levels. For example, if a person recruits two members, and those two members each recruit two more, then we see one person in the first level, two in the second, and four in the third level. This way, the levels keep increasing, and hence it is called multi-level marketing.
Islam commands Muslims to engage in trade through lawful means and has clarified the principles of permissible trade for us. This includes prohibitions on lying, deceit, exploitation, fraud, usury, hoarding, unlawful activities, gambling, etc. We are instructed to trade permissible goods in lawful ways.
Network marketing not only leads to the destruction of individuals, society, and the nation but also contains several Shariah flaws. Though it is labeled as trade, in reality, it is a form of gambling disguised as business, driven by the greed to earn maximum profit in minimal time with little effort. Every member, driven by greed, joins, usually getting trapped by their close ones. When someone becomes a member, they have to use smooth talking, unnecessary praise of the company, deceptive marketing, and repeated psychological pressure to coerce others into joining the company. In simple terms, members are lured with promises of big dreams. This kind of persuasion is not seen in any other trade in the world. Islam provides no example of such a form of business in its teachings about trade.
Let us now examine whether multi-level marketing is truly a form of trade and whether it is permissible according to Islamic Shariah.
This company does indeed sell products, and those who become members are required to purchase these products. However, this raises the question: if a person needs to buy something, why do they have to become a member? Why is there a mandatory condition to recruit others? And if the company needs employees for its product distribution, why are employees forced to buy the products, often at prices many times higher than the market rate? Members buy the products because they want to be associated with the company, otherwise, they wouldn’t. Most of the time, the products are not useful to the members, but in their greed for quick profits, they bear the burden of unnecessary items. For example, if a person becomes a member and receives twenty products, ten of them might be useless. Imagine the loss of buying ten unnecessary products at many times the market price. If fifty thousand people are associated with such a company, the collective loss to all these people would amount to millions, but most members remain unaware or, if they are aware, remain silent due to their greed for commissions.
This shows that neither the company nor its members are genuinely interested in trading. The company’s products are not sold openly in the market; only members can purchase them.
The recruitment of members in this company is quite dangerous, as it holds entire towns hostage. This is a blatant injustice. If you have a company or are associated with one, you can introduce your company and its trade fairly, but it is wrong to pressure others through smooth talking.
There are many other flaws and harms in this company. The biggest truth about this company is that it lacks sustainability, as its survival depends on member recruitment. Once a town’s quota is filled or recruitment stops, the company will go bankrupt and vanish, as has happened in many towns. The government in several countries has also taken action against such companies. Every member’s profit comes from recruitment, but when someone first joins, they only face a loss after purchasing the products and earning no immediate profit. Profit only begins when the required number of members and conditions are met. All the members in the initial levels suffer a loss at first, and then, those in the higher levels earn more, while those who join later earn less. As new members are added, part of their profits goes to the early members. Once the company reaches its recruitment limit, those in the last level are deprived of profit because they cannot recruit more members, and the last level usually consists of thousands of people. Thus, thousands of people join in the final stage and suffer massive losses. Furthermore, members who are not smooth talkers or cannot recruit others also miss out on profits. In the end, only a few earn profits, while the majority are left in loss.
After this introductory discussion on the dangers and structure of network marketing, I will now outline the Shariah issues associated with it, so that you can avoid it and also warn others. You should earn a lawful livelihood based on hard work and encourage others to do the same.
First Flaw: Unjust Distribution of Wealth
Just as in capitalism, wealth is concentrated in the hands of a few, similarly in this trade, wealth accumulates in the hands of the initial members, while those in the later stages either suffer losses or earn little to no profit. The initial members are safeguarded from losses, but there should have been a balance and equity based on effort and labor across all levels. The beauty of the Islamic economic system is that it avoids both the unjust distribution of wealth in capitalism and the unacceptable claim of equality in socialism. Instead, Islam establishes justice, moderation, and balance among people. Allah says in the Quran:
“So that wealth does not merely circulate among your rich.” (Surah Al-Hashr, 59:7)
Second Flaw: Product Monopolization
This company does not offer its products to the general public but restricts them to its members. This falls under the category of monopolization. Hoarding products at home and selling them when market prices rise is prohibited in Islam, and this behavior bears a resemblance to network marketing. The Prophet (ﷺ) said:
“No one hoards but the sinner.” (Sahih Muslim: 1605)
In pre-Islamic times, when a Bedouin came to trade in the city, some merchants would buy all the goods, preventing others from buying directly from the Bedouin, even though these goods would be sold later in the city at higher prices. The Prophet (ﷺ) forbade this practice.
عَنْ أَنَسٍ أَنَّ النَّبِيَّ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ نَهَى أَنْ يَبِيعَ حَاضِرٌ لِبَادٍ وَإِنْ كَانَ أَبَاهُ أَوْ أَخَاهُ(صحیح النسائی: 4492)
Translation: The Prophet forbade a town-dweller to sell for a desert- dweller, even if he was his father or brother.
When this situation is prohibited, how can it be correct to limit products to just a few people?
Third Flaw: Conditional Selling
In this company, when someone buys a product, technically, their purchase is complete when they pay for the product. However, in this company, the sale is conditional. When someone buys something from this company, it comes with the condition that they must recruit a certain number of members, and only then will they earn profit and commission. The Prophet (ﷺ) forbade tying another deal with a sale. Hazrat Abu Huraira (may Allah be pleased with him) narrates:
"The Messenger of Allah (ﷺ) prohibited two deals in one sale." (Sahih al-Tirmidhi: 1231, Sahih an-Nasa'i: 4646)
Similarly, the Prophet (ﷺ) said:
“Two conditions in one sale are not permissible.” (Sahih Abu Dawood: 3504)
An example of two conditions in one sale would be when the seller says, “I will sell you this item on the condition that you must also do a certain task.” This scenario is found in network marketing.
Fourth Flaw: Deception and Harm
Deception is forbidden in Islamic trade, and so is harming others through business. The government, as well as the members, are deceived in various ways, and wealth is unjustly taken, causing them harm. The trade is merely a facade in the eyes of the government and the public. The Prophet (ﷺ) said:
"There should be neither harming nor reciprocating harm." (Sahih Ibn Majah: 1910)
Hazrat Abu Huraira (may Allah be pleased with him) narrates:
"The Messenger of Allah (ﷺ) forbade a transaction determined by throwing stones, and the type which involves some uncertainty." (Sahih Muslim: 1513)
And Allah Almighty says:
"O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent." (An-Nisa: 29)
Here, the business is merely a facade, deceiving people with eloquence, and the aspect of mutual consent is missing.
Fifth Flaw: Gambling
Just as in gambling, where people invest money with hopes and fears of winning or losing, the same situation applies here. People buy cheap products at inflated prices, hoping for future commissions and profits. There is uncertainty about whether they will be able to recruit members or how many they will recruit. Thus, their money is put at risk, just like in gambling. Allah has forbidden gambling (maysir) through the word maysir in Surah Al-Maidah (5:90). The term *maysir* is derived from ease, meaning in gambling, a person hopes to earn a lot with little effort and time. This same hope is seen in network marketing.
Sixth Flaw: Profit Without Work
Another significant flaw in network marketing is that a person only recruits a few members at the first level, and after that, their profit continues simply because the members they recruited are recruiting others. While the earnings for the effort at the first level may be reasonable, the profits earned from the recruitment efforts of others at subsequent levels are unreasonable. There are three legitimate ways to earn profits:
- Either we invest money and also work in the business; this is known as shirkah (partnership).
- Or we invest money, and someone else works; this is known as mudarabah (profit-sharing).
- Or without investing money, we work; this is known as ijarah (wage-labor).
In network marketing, the member spends money to buy products, so the form of partnership and profit-sharing does not apply. As for labor, a member works up to a certain level, but profits are earned from all subsequent levels. Hence, this is not permissible according to Islamic law.
Seventh Flaw: Deceptive Trade
It has been clarified above that the purpose of this company is not trade at all. This can also be deduced from its promotional pamphlets, which contain only a few lines about trade but pages and pages about commissions for member recruitment. For this reason, unnecessary goods are sold in this business, hidden from the public and only available to members, often at prices far above the market rate. Deceptive selling of products in this manner is also forbidden. It is narrated from Ibn Umar (may Allah be pleased with him):
"The Prophet (ﷺ) forbade deceitful bidding to inflate prices." (Sahih an-Nasa'i: 4517)
I see these aforementioned Islamic flaws in this market, which is why it is not permissible for any Muslim to run such a company or participate in it. Some members argue that since brokerage fees are allowed in Islam, why is commission for member recruitment not permissible here? The answer to this can be found in the sixth flaw, which explains the extent to which profits from member recruitment are allowed. Another objection raised is that members work beyond the first level; they check the progress of their marketing, maintain relationships, and offer good suggestions. The answer to this objection is that the commission continues even if early members do not maintain contact with later members, so these relationships are meaningless. Some members claim that the company gives them benefits as a reward, but it can be said that rewards cannot be given in the form of continuous fixed profits. Some people create the excuse that early members serve as intermediaries for later members, so continuous profits are justified. However, financial gains in Islam are subject to specific criteria, as mentioned above, so it is not permissible to earn profits outside the framework of Islamic standards.
Written by: Maqbool Ahmed Salafi
Islamic Dawah Center, Northern Taif (Masrah)
Interpreter: Hasan Fuzail