Sucheta Dalal :Multi-Level Marketing: Some action in the offing?
Sucheta Dalal

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Multi-Level Marketing: Some action in the offing?  

November 12, 2012

The government does not seem to care so long as the founders are close to political parties

Sucheta Dalal

Moneylife has persistently written about how Ponzis, chit funds or multi-level marketing (MLM) schemes have been looting ordinary Indians through their false promises of extraordinary returns. An international consultant to MLMs writes to say, “Your country is overrun with pyramid schemes.” True, but so long as they are close to political parties, the government doesn’t seem to care. It is a well-known fact that founders of ponzis and MLMs are the primary financiers of regional parties and derive their own financial muscle through these connections. They are now buying regional television channels and acquiring stakes in print publications to enhance their clout. The founder of one such Ponzi network, who has operations and political links with two state governments, has even bagged a nomination to the Rajya Sabha.

Has the UPA government realised that it makes sense for it to cut the dubious financial pipeline of these MLMs to the regional parties? At least three ministries (finance, corporate affairs and consumer affairs) are pushing for strong action against Ponzis and chit funds. SEBI, which has won a bruising battle with two Sahara companies that are fast running out of time to refund Rs25,000 crore under a Supreme Court order, has also been forced to deal with land bank ponzis and goat- and emu-rearing scams. It is pushing for a strong Central legislation with a registration process. While a Central legislation will help, the government also needs to figure out whether it wants to legitimise multinational direct marketing companies, which also use a recruitment model to sell products. These companies have been lobbying hard for clarity in regulations through the Indian Direct Selling Association, since their business falls foul of the Prize Chits and Money Circulation Schemes (Banning) Act of 1978. While these companies are not dubious binary schemes which promise extraordinary returns (usually over 100%) based on a simple Ponzi structure, they also enrol distributors by promising a lucrative income or alternative career. However, senior executives confess that income from direct selling is not really a career option and can, at best, be a source of additional income or pocket money for the majority of distributors. They also feign ignorance of the mis-selling of nutraceutical products (very popular with direct selling companies) without proper medical prescriptions or dosage guidance.

-- Sucheta Dalal