Monday, May 31, 2010

Forbidden Kinds of Wealth : Joining Pyramid Marketing Scheme

In the name of Allah, the Most-Merciful, the All-Compassionate

"May the Peace and Blessings of Allah be Upon You"


Praise be to Allaah, we seek His help and His forgiveness. We seek refuge with Allaah from the evil of our own souls and from our bad deeds. Whomsoever Allaah guides will never be led astray, and whomsoever Allaah leaves astray, no one can guide. I bear witness that there is no god but Allaah, and I bear witness that Muhammad is His slave and Messenger.

Bismillah Walhamdulillah Was Salaatu Was Salaam 'ala Rasulillah
As-Salaam Alaikum Wa-Rahmatullahi Wa-Barakatuhu

Forbidden Kinds of Wealth :
Joining Pyramid Marketing Scheme

compiled from islam-qa by Adil Khan

Taking a card and giving money to its owner and five other people, in a pyramid scheme

I took a card from a friend of mine and I have to pay $100 for this card, and $100 to the person who gave the card to my friend, and $100 to five people who did the same thing, one after the other (i.e., like a chain letter or something similar). The sixth person takes $800 and the company that is in charge of this takes $800. It carries on like this until everyone who sends the card gets $400. If he gives four cards to four people, and each of them gives the card to another person, the first one will get $1600 and so on. 
Is it permissible to take part in this scheme?.

This scheme involves gambling and consuming people's wealth unlawfully, both of which are clearly forbidden as Allaah says (interpretation of the meaning):

"O you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling, and Al‑Ansaab (stone altars for sacrifices to idols, jinn, etc), and Al‑Azlaam (arrows for seeking luck or decision) are an abomination of Shaytaans (Satan's) handiwork. So avoid (strictly all) that (abomination) in order that you may be successful.

91. Shaytaan (Satan) wants only to excite enmity and hatred between you with intoxicants (alcoholic drinks) and gambling, and hinder you from the remembrance of Allaah and from As‑Salaah (the prayer). So, will you not then abstain?"

[al-Maa'idah 5:90-91]

"O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent"

[al-Nisa 4:29]

The way in which this scheme involves gambling is that the person who joins it spends his money and gets nothing in return, hoping that he will get more money. So he is not certain whether he will win or lose, and this is the definition of gambling.

The way in which it involves consuming people's-wealth unlawfully is obvious. No one gains money from this scheme except the ones who set it up and a small number of those who join it; most of them come out with nothing but sin and regret.

Hence in some western countries such schemes are known as pyramids of illusion or selling air. 

Dr Waail Ghunaym, the head of marketing in an e-mail company says:

This idea is based on a principle that is akin to gambling, whereby each person puts his money on the table then the one who is the most eloquent and persuasive takes it all.  Joining the scheme earlier also plays a role in acquiring the thousands upon thousands, because the one who starts it and those who follow him, up to a certain level of the pyramid – which varies according to how big the company grows and how many levels there are in the pyramid – are the ones who will earn the large amounts of money.

They are like the gamblers who win big. Their intelligence plays no role in their huge earnings, all that they do is to convince a number of people to join and they sit and watch what their followers will do and so on.

It remains that the first one is better off, and the pyramid has different levels, as follows:

1 – The kings of the pyramids of illusion. They are the ones who will earn huge amounts because they joined it first and their numbers are few

2 – The dealers of the pyramids of illusion. They are the ones who will earn something but it will be a very ordinary amount and not that on which they pinned their hopes. Their number is also few.

3 – Those who escape unscathed from the pyramids of illusion. They are the ones who will neither win nor lose, but they managed to get back the money that they paid in. Their number is moderate.

4 – The victims of the pyramid, who are more than 80 % of those who join the scheme. Their number is greater the more levels there are in the pyramid.

The number of those who are able to convince others to join becomes greater the more levels the pyramid acquires. This clearly shows us that the greater earnings can only come when more losers join the scheme, because the company will make profits, and the kings and dealers will make a profit, and this mathematical equation can only be achieved at the expense of victims of the illusion, who donated their wealth to the kings and dealers of the pyramid.

And he said: 

On January 5, 2000 the department of consumer protection in one of the states of the US issued a warning about a club that was using its membership cards as a means to propagate these pyramids of illusion. The Trade Department in that state had already warned about these pyramid schemes and described them as follows: they promise a quick and certain profit, and they tell everyone of how successful this idea has been for some workers who joined the scheme. They are based on face-to-face meetings in which they use psychological pressure so that a person does not think and signs up as soon as the presentation ends. The Department stated that these pyramid schemes are based on lies and that very few of those who join will make any gains.

The Canadian government added a clause to its Criminal Code expressly forbidding any individual or organization to operate pyramid schemes. The government described these schemes as a program in which a person pays a sum of money to join the group, in return for attending lectures or getting some educational material on this subject, then he is required to try to persuade a certain number of people to do the same. The Canadian police website states that millions of dollars were collected from people who joined the scheme and lost their money, whilst a very small number of people acquired a huge amount of money.

Robert Carols, author of False Profits, published a detailed analysis which proves to all that these pyramid schemes are no more than a fraud that is based on a large number of participants, in which only the people at the top of the pyramid gain anything; they are usually the owner of the company and the original members with him. 

The Standing Committee has been asked about various forms of such schemes, and they have stated that they are all haraam and that they are kinds of riba and gambling.

It says in Fataawa al-Lajnah al-Daa'imah (15/212):  

If the matter is as described, then this scheme is a kind of gambling that Allaah has forbidden in the verse (interpretation of the meaning): 

"O you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling, and Al‑Ansaab (stone altars for sacrifices to idols, jinn, etc), and Al‑Azlaam (arrows for seeking luck or decision) are an abomination of Shaytaan's (Satan's) handiwork. So avoid (strictly all) that (abomination) in order that you may be successful."

[al-Maaidah 5:90]

And they also said (15/215): 

This kind of operation is not permissible, rather it is an evil action and one of the worst of major sins, because it involves riba al-fadl and riba al-nasee'ah, both of which are haraam according to the consensus of the Muslims. And it involves toying with people's wealth and consuming it unlawfully.

In this sense it comes under the ruling on gambling which is haraam according to the texts of Islam and according to scholarly consensus. 

And they also said (15/218): 

The transactions mentioned involve ambiguity, riba and gambling, all of which are major sins that incur the wrath and anger of Allaah.

Dealing with companies that use pyramid marketing

It is not permissible to join this scheme, which is what is known as a pyramid scheme or a networking scheme, because it is based on gambling and it is not known how the money is invested in it.

As for the gambling, if a person pays $10 in the hope that new members will come and he will gain more, then this is the essence of gambling, as he may or may not make a profit.

Allaah has forbidden gambling and has mentioned the prohibition on it with the prohibition on alcohol, stone altars and seeking divination etc by arrows, as He says (interpretation of the meaning):

"O you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling, and Al‑Ansaab (stone altars for sacrifices to idols etc) and Al‑Azlaam (arrows for seeking luck or decision) are an abomination of Shaytaan's (Satan's) handiwork. So avoid (strictly all) that (abomination) in order that you may be successful"

[al-Maa'idah 5:90]

Gambling refers to any transaction in which there may be a gain or a loss, and in which a person does not know whether he will be a winner or a loser. 

As for not knowing how the money is invested, that is because it is not known where the company puts its money or how it invests it. It is not permissible for anyone to invest his money until he knows whether the way it is to be invested is permissible. Many of these companies do not invest the money at all, rather they cheat people and consume their wealth unlawfully.

Hence these kinds of companies are known in some countries as companies that sell dreams, or illusionary pyramids, because no one gains from them except a small number of people, then the company soon folds and ceases operation.

A number of scholars have issued fatwas stating that it is haraam to deal with companies that use pyramid schemes, even if they sell some goods or products.

Ruling on "Pyramid Marketing Scheme"

Firstly: The way this operation is done is very similar to so called pyramid schemes or multi-level marketing (MLM), even though it may not be exactly the same in all aspects. Pyramid schemes are based on an incentive system, and those who invented them in the west looked only at earning money, with no attention to the question of whether the source is permissible or not. If we assess this system in the light of the texts and principles of sharee'ah, it will become clear that it is haraam from a number of angles, such as:

(i)                It is based on consuming people's wealth unlawfully, because this pyramid will inevitably have a final level, and these people will definitely lose out to the interests of the higher levels. The pyramid can only grow when there are people who will lose out to the interests of the higher levels which will collect insanely high commissions. In the last two levels of every branch there will be two levels, the first of which is lying and giving false hope to the next level of making a profit, and the last level which will be fooled and cheated, because it will buy but will never find someone to sell to. We have already mentioned above the verses and hadeeth which sternly forbid consuming people's wealth unlawfully.

(ii)              It is based on gambling, which means that a person pays money in return for which he may get more money than he paid, or he may lose his money. This is what happens to those who join such schemes. This is one of the most important and clearest reasons for it being haraam.

(iii)            Because pyramid schemes involve a lot of cheating and deception, they have been banned and outlawed by many kaafir western systems – if they appear in a form where there is no product for sale – even though those systems allow riba and gambling in principle – and their experts have warned against them. (See the following website and its many links:

Based on the above, the "Business" operation mentioned in the question is haraam for many reasons, because it resembles pyramid schemes in the main reason why it is haraam, which is th1at it is a form of gambling and consuming people's wealth unlawfully.

Secondly: Including a product in such a program does not make it permissible or remove the reasons why it is haraam, rather it makes it even more emphatically haraam, because this is a kind of trickery aimed at making this operation acceptable and giving the impression that the product is the main objective. But "Changing the definition and name of things that are haraam when their essence remains the same is even more evil, as well as involving an attempt to deceive Allaah and His Messenger." Ighaathat al-Lahfaan, 1/354

It seems that the product has no effect of rendering the operation permissible for the following reasons: 

(i)                The most important motive for participants is the marketing, not the product, based on the fact that these kinds of programs and services existed many years before this company appeared and still exist, for a lower price! What is making so many people rush towards these schemes, and this particular company, apart from the hopes of the income generated by joining this scheme?

(ii)              The suggestion that the products are useful and easy to operate and have distinct features that make it worth paying one hundred dollars for them is a flawed argument, because this program has no copyright preventing individuals making use of the site through the one who has already joined, without the new user paying anything. Indeed if one individual subscribes, dozens could use it and benefit from all the services offered on the site. It only has copyright protecting other companies from using it. What motive is there to spend money on it except to be part of this pyramid scheme which is in effect gambling?

(iii)            There is an essential condition for joining this pyramid scheme, which is that one buys the product for more than the price of similar products in order to obtain more commission and to use the company's website for advertising and marketing. Temptation leads people to pay the exorbitant price in the hope of recouping it and making more by means of the marketing which is the primary purpose for joining. This is the essence of gambling which is forbidden in sharee'ah.

(iv)            The mention of tempting commission in return for marketing is what motivates people to buy and join the scheme, because usually they do not buy unless this commission is mentioned, and because some may even agree to buy without checking on the products they are buying, or without needing them in the first place. The fact that many people do not benefit from most of the programs confirms this further; in fact some of them do not even use the programs at all.

(v)              The amount required to join - $99 – is equivalent to a month's salary or more in some countries, so ordinary people would not pay such an amount and join this scheme, unless there is the hope of making a lot of money. Yet despite that many people join and even take out loans for that purpose.

(vi)            When those who join for the sake of the product find out the company states that three-quarters of what they paid is spent on marketing instead of using advertising agencies, this motivates them to take part in marketing in order to recoup what they have paid in excess of the product's value. So they get involved in the marketing process, then they get carried away and do not stop at making up what they have lost, rather they keep going.

(vii)          Some enthusiasts buy the company's product more than once and some, as they have themselves admitted, buy it one hundred times! Even though they know that buying it once guarantees that the purchaser will benefit from all the company's programs at any time. No one would doubt that this is a form of gambling, and clearly indicates that the aim of this operation is gambling.

(viii)        The company obliges purchasers to continue marketing and earning high commissions by renewing their subscriptions annually for the same amount, on the basis that they are going to add new services. But these new services – even if they are real – still add up to buying something unknown for a set price, because the new services may be small, or they may contain new programs that the subscriber has no need of. So this purchase is haraam because it involves deceit and ambiguity, as one of the parties has no idea what he is buying.

(ix)            The individual should check himself and understand his intentions in joining this program. That will enable him to understand that the aim is to make him join a pyramid scheme, especially when he can get whatever he needs of these programs and services for free or for much less on other sites, as well as having the option of not buying things he does not need.

Thirdly: This operation does not come under the heading of brokerage that is permissible, because it is different from it in several essential ways. Those muftis who stated that it is a kind of brokerage only answered questions in which no details were mentioned that would give a proper picture of the issue, thus these fatwas do not reflect reality. One of the conditions for a ruling to be valid is that it must be based on proper understanding of the issue. Based on this, it is not permissible to follow one whose ruling is known to be based on an imperfect understanding of the issue.

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