Application of Ju Alah in Multi-level Marketing (Mlm)

APPLICATION OF JU’ALAH IN MULTI-LEVEL MARKETING (MLM) Aimi Fadzirul Kamarubahrin & Muhammad Iqmal Hisham Kamaruddin

ABSTRACT The Fiqh Council committee was meeting in the 72nd Conference of the Fatwa Committee of the National Council for Islamic Religious Affairs Malaysia on 23 January 2006 that discussed about the ruling of Multi-Level Marketing (MLM) in Islam. The committee agree that the concept, structure, and regulations of MLM approved by the Government are permissible and not in contradiction to the Islamic business concept. However, questions arise over what are the characteristics of direct selling business that are in line with Shariah principles which due to nature of MLM business as it is often associated with the negative elements arising from the unethical attitude of some practitioners in the business. Due to negative elements and unethical attitude, Indonesian Fiqh Council has decided that MLM will be permissible under Shariah if it abides some conditions. While, according to fatwa by Saudi Arabia MLM is forbidden and haram. Due of conflicts of different fatwa, this writing will discuss about MLM and Shariah perspective of MLM, the modern and classical jurists view of MLM. In this writing, we will focus in ju’alah issues in the application of MLM practiced by one of the MLM company in Malaysia which known as Company A.

Keywords: Multi-Level Marketing (MLM), Ju’alah

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 Aimi Fadzirul Kamarubahrin, Faculty of Economic and Muamalat, Universiti Sains Islam Malaysia, Nilai, MALAYSIA 

 Muhammad Iqmal Hisham Kamaruddin, Faculty of Economic and Muamalat, Universiti Sains Islam Malaysia, Nilai, MALAYSIA 1

Introduction Direct selling through MLM is one of the controversial businesses in this modern business. MLM is one of the business activities that can generate income to individual and nation. These types of business give public opportunity to add extra income that can generate livelihood regularly or as side income in order to improve standards of living (Malaysia, 2013, p. 1). However, there are some negative elements and critics where some have loss their money because cannot get return that have been promise and suddenly leave the businesses. This phenomenon has raised a lot of concerns and queries among the public especially from the Shariah point of view in earning income by joining these MLMs.

Multi-Level Marketing (MLM) MLM was one of the marketing direct selling system that had developed and very popular among public (Peterson & Albaum, 2007, 24 (4)., p. 318). Even, 80 percent direct selling was based on MLM (Salciuviene, Reardon, & Auruskeviciene, 2011, p. 89). Same goes with Malaysia also, statistics in 2003 shows that MLM industry in Malaysia recorded sales of more than RM4 billion and more than 3 million people are involved in MLM transactions (Abd. Rahman, 2008, p. 185). The MLM companies may be an individual, firm, corporation or other type of business entity. Examples of the MLM companies in Malaysia are Avon, Amway, Equinox International, NuSkin, and Tupperware. MLM also known as network marketing which refers to the practice of conducting business that involves selling goods and services through a network of distributors. These agents are paid commissions, bonuses, discounts, dividends or other forms of consideration in return for selling products or services and for recruiting other agents. The party who recruits another participant is the “upline” of the recruit while the recruited party is the “downline” of the recruiter. In MLMs, upline are paid bonuses or commissions on the sales made by their direct downline and by those who are downline of these direct downline. In addition, other than rewards like bonuses and commission, MLM also give support in terms of a continuous training program, motivational courses, and other incentives such as prizes or holiday packages. 2

While according to Peterson and Wortuba (Fall 1996) direct selling is “face-to-face selling away from a fixed retail location.” In other words, direct selling refers to the way a firm contacts and executes business with their customers. However, not all direct selling is multilevel marketing but within the direct selling industry, there is a common type of compensation plan that is used by many of the leading companies. Sellers are compensated not just for the sales they personally generate but for the sales generated by the people they recruit because those involved are compensated down through multiple levels of recruits (i.e., those they recruit, those their recruits recruit, etc.). This type of direct selling often called as multilevel marketing. The recruiting is usually done through personal networking; thus, multilevel marketing is also sometimes referred to as “networking marketing”. In terms of operation, the business model involves a combination of buying and selling and then marketing. Dealers or stockists first need to buy good from reputable direct selling and so on making sales to other dealers or users. These dealers recognized as ‘independent business owner’ as they market the goods and services produced by the MLM companies by their own effort and creativity. Muhammad (2010) said that although the concept of MLM is the same (which is direct selling) but the system and the way of some MLM with others are different. Thus, halal and haram of MLM cannot be measured on the name and concept, but must look through the application and system applied. Muhammad (2010) also stated that to measure MLM from an Islamic perspective, we need to look at several angles such as legal origin of MLM, opinions of jurists, and the factors that forbid it.

MLM According to Shariah Perspectives Legal forms for all muamalat activities must be in accordance with fiqh, al-aslu fi al-ashya’a al-ibahah, and there is no supporting legal evidence (dalil) or factors that ban it. Business is one of the activities recommended in Islam as a means to improve the socio-economic status of the community. Even the Prophet Muhammad (pbuh) himself was a brilliant trader. As a trader, basic principles in Islam which should be implemented with the support of the values

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and shunned all elements of vanity as a ruse, gambling and usury had been stated in following verse which is: "O ye who believe, do not consume (use) your wealth among yourselves in vanity (plot, gambling, etc.), except it be a trade consensual among you, and do not be killing one another. Verily, Allah always has mercy on you." (Al-Nisa’ 4:29) Based on the above verse, the system and concept of MLM is permissible as long there are no factors that forbid it. Indeed, for judgment as illegitimate of some muamalat must necessarily base on the proposition. Therefore, as long as there is no dalil or haram factors MLM is consider as permissible. In addition, The Fiqh Council committee was meeting in the 72nd Conference of the Fatwa Committee of the National Council for Islamic Religious Affairs Malaysia on 23 January 2006 that discussed about the ruling of Multi-Level Marketing (MLM) in Islam. The committee agree that the concept, structure, and regulations of MLM approved by the Government are permissible and not in contradiction to the Islamic business concept. However, there are several committees fatwa in Arab countries such as Saudi Arabia, Jordan and Sudan, which have banned the MLM business. Da’irah al-Ifta’ al’-Am alUrduniyyah when issuing a fatwa numbered 644 concluded that the MLM method by taking commissions under the brokerage contract and get rewarded by search downline is forbidden (Sulaiman, 2011, pp. 169 - 170). Even, Indonesian Fiqh Council have concluded in their fatwa that MLM is haram if the MLM operates by accumulating funds from the public as capital for the business and promises fixed return every month (Abd. Rahman, 2008, pp. 200-201). In addition, fatwa number 22935 that was issued in Saudi Arabia also alludes to MLM companies which promoting their product to the marketers or distributors by focussing on the huge commission they could potentially earn also forbidden (Musa, 2012). Ju’alah is one of factor that makes MLM haram and forbidden. Ju'alah is a promise of reward or commission. In other words, means wages or prize given to a person because the person is performing a particular job. In the terminology of fiqh means “an iltizaam 4

(responsibility) in the form of promises certain rewards voluntary wage against those who managed to do something or provide a service that has not been implemented or can be produced as expected”. Ju'alah is an agreement on the benefits of something that allegedly will be obtained. In short, ju’alah means the rewards is based on result or achievement, not on effort. The issue of rewards or payments with ju’alah concept or commission through sales of goods and services is a real pressing issue regarding MLMs businesses (Mohamed).

Ju’alah The Classical Rules Concerning the Ju’alah On top of membership fee, MLMs normally would set a minimum sales or volume target for the upline to be achieved within certain period, if they would like to enjoy any commission from the sales of their downline. In the case of failures to meet the target, the participant’s membership maybe terminated or they would not be entitled to receive any commission. In Target A, the profit taken by every participants (‘amil), no matter he/she is in the upline or downline, will get what he/she was promised, a commission based on each’s performance or achievement. It is a concept of ju’alah. The scholars of the Hanafi opine that the jua’lah contract contain elements of gharar (Mohamed). It has uncertainty elements regarding time and relation to the task. This view is based on analogy to ijarah which provided certainty about work, workers compensation and time. Meanwhile, Maliki, Shafi'i, and Hanbali argued that ju'alah is permissible with the following reasons: i.

In the following Quranic verse which means: 'They said "We lost the king's chalice, and who can return it will obtain food equivalent to a camel-load, and I guarantee it."

ii.

(Yusuf 12:72); and In a hadith, the companions once received by way of gift or reward ju'alah a goat because one of them managed to treat a person who was stung by a scorpion by reading surah Al-Fatihah and then applying spit (saliva) on the wound. When they told it to the Prophet, Rasulullah laughed as he said: "Did you all know that it is a blessing? Accept the gift and distribute my share”. (Narrated by Imam Bukhari). 5

The Modern Jurists View Concerning the Ju’alah

Abd. Rahman (2008) said, generally commission that is earned through sales of goods and services (like brokerage fee) is permissible (mubah) in Islam; this is the opinion of prominent Muslim scholars like Muhammad Ibn Sirin, ‘Ato' Bin Abi Rabah, Ibrahim an-Nakha'ie and many more (Sohih Al-Bukhari; Al-Musannaf, 5/242; Mawahibul Jalil, 4/452). However, those commissions may convert to haram status if:

i.

Sales commission of the network is tied to the participant personal sale, as the participant had to maintain or reach certain minimum volume of target to entitle him/her to the reward. It is issues involving oppression, invalid conditions and gambling like activities; and

ii.

The commission originates from an unknown downline. It is happened because the network is too big and seems the upline enjoy the commission without putting any effort. This situation will lead to compound brokerage (broker on broker on broker). Zaharuddin Abdul Rahman said from his discussion with Syeikh Prof. Dr Abd Sattar Abu Ghuddah (Main Shariah Expert in Islamic Finance at the International Fiqh Academy, AAOIFI, Dow Jones Islamic Index and many more association), he pointed out that compound brokerage falls under the category of eating up another's property unjustly and has an element of gambling in it.

The MLM Company: Company A Company A is the first owned company to have embarked into the Web-education wave in the year 1999, by introducing an E-Learning programme preparing students to be exam ready. Over the 10 years of inception, Company A have successfully guided thousands of students to 6

score straight A’s in their relevant major government examinations, which includes UPSR, PMR, and SPM. Company A was established in 1999 by Mr. J. The Research and Development stages witnessed the development of the Target A software. Huge investment of approximately RM4.5 Million was invested to build this program. Back in 2002 till 2005, market testing was taking place where approximately 89 schools were selected to test our effectiveness of the Company A programs. Amazingly, the results indicate staggering 93% of the users scoring straight A’s. On the 1st April 2006, Company A was giving the endorsement officially by the Ministry of Education and officially launched by the former Education Minister, Dato’ Sri Hishamuddin Tun Hussein. Company A offers services of education which call Target A. This product will help the users to study and revision easily before examinations. One of the product that offer now is Target A Premium Package Program which comes along with i-Teacher module which very helpful for children to do revision. The package can be look in Table 1 below: Table 1: Target A Premium Package Program No. of Children Registration of children (lifetime) Access to 6 months (for all children from Year 1 – Form 5) Cost per month/ per child

1 RM50

2 RM100

3 RM150

RM348

RM348

RM348

RM58

RM29

RM19.33

Other than that, Company A also offer Target A Classic Package Program which shown in Table 2. Table 2: Target A Classic Package Program No. of Children Registration of children (lifetime) Access to 3 months (for all children from Year 1 – Form 5) Cost per month/ per child

The Application of Ju’alah in Company A 7

1 RM50

2 RM100

3 RM150

RM248

RM248

RM248

RM82.77

RM41.33

RM27.55

Obviously, Company A is one the company that practiced MLM. However, some people keep questioning and disputing the practices by this company. For example, the upline will get commission from the sales volume which run by the downline, also claimed the form of maltreatment activity done by upline, elements of fraud, no rewards and more. There are several rewards or compensations can be obtained in Company A by selling Target A programs according to (Nasir) which are: 1. Selling Target A programs to parents of students will get profit of RM238.40/ per portal. 2. Edu Bonus reward will give profit of RM140/ per person you introduced. 3. K Match Bonus will give profit of RM80 per couple you introduced. 4. K-Reward Bonus will give 5% of profit from partner. From here, we can say that every person will get that bonuses, rewards, and commission by selling it to the parents of students. However, they also get bonus by introducing downline to the Kenshido and get 5% profit from downline or upline selling. According to Shariah Advisory Panel of Company A, MLM is a company who makes a promise to give certain rewards to any person or persons who managed to achieve or realize certain goals. This is what practices by Company A. Company A give rewards to the members based on their achievements. In Company A, they are applying a structured ju’alah where there is no issue of enriching uplines (Engku Ali & Che Seman, Mei 2010, p. 10). In fact, the observation of Shariah Advisory Panel adopted by Company A show many downline have surpassed their upline earnings because they were trying to achieve better than their upline (Engku Ali & Che Seman, Mei 2010, p. 11). In practical terms, the observation of Shariah Advisory Panel also shows many upline help their downline without get bonuses on the volume produced. Importantly, each participant regardless upline or downline to get what was promised based on the level of achievement and a marketing plan that has been agreed upon. (Engku Ali & Che Seman, Mei 2010, p. 11)

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Company A has been recognized as the ‘Shariah Compliance’ Company on 7th February 2010 or 22nd Safar 1431 by one of the Islamic financial institutions (IFI) in Malaysia which is Bank Muamalat Malaysia Berhad (BMMB). Company A deserves the recognition of Shariah Compliance due to their ju’alah, which is given clearly and based on Shariah. Below are some reasons that make Company A recognized as the Shariah Compliance. i. The commission given to members for each seller and its downlines should be clear. ii. The profit and commissions are not how much per head you can sponsor, but it is based on the success of selling product. iii. Not required for the member to sell a certain amount to obtain commission of his subordinates. iv. Each of the upline or someone at the top must be placed on the sale of his subordinate enterprises. v. Does not use the pyramid scheme, which is whoever registers or joins earlier will obtain profit forever. vi. Presenting the commissions and bonuses transparent and understandable, and monitored by experts clearly. It is to prevent any kind of fraud. vii. Structuring the marketing plan among members and their subordinates through musyarakah of profit and loss sharing based on their capital with profit sharing ratio which is set at the very beginning.

Conclusion MLM is a controversial business in this modern business. By joining MLM, could generate side income, which improve standards of living. When joining the MLM, participant will promises to get commissions and bonuses in return but at first they will used their own money as model to buy the product then resell it to others. However, there are have lost their money because cannot get return that have been promise and suddenly leave the businesses. This phenomenon has raised a lot of concerns and queries among the public especially from the Shariah point of view in earning income by joining these MLMs. Most of the MLMs, the upline will get more commission from the selling of downline. Downline do the job but upline get the bonuses and commission. This type of ju’alah is forbidden and prohibited in Islam. Permissible ju’alah is commission that is paid 9

based on their achievement. In this case, Company A has given commissions and bonuses due to their participants or members achievements. That’s why Company A has been recognized as Shariah Compliance Company.

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References Abd. Rahman, Z. (2008). Money, You & Islam. Kuala Lumpur: True Wealth Publishing. Engku Ali, E., & Che Seman, A. (Mei 2010). Laporan Bertulis Penilaian Kepatuhan Shariah Produk dan Pelan Pemasaran Berbilang Tingkat (Multi-Level Marketing Syarikat Kenshido International Sdn. Bhd. Kuala Lumpur: Kenshido International Sdn. Bhd. Kenshido. (n.d.). Background of Kenshido. Retrieved October 20, 2014, from Kenshido: http://www.kenshido.com Malaysia, J. K. (2013). Garis Panduan Perniagaan Jualan Langsung Secara Pemasaran Berbilang Tingkat (Multi-Level Marketing) Menurut Shariah. Kuala Lumpur: JAKIM. Mohamed, H. (n.d.). Academia.edu. Retrieved October 20, 2014, from Academia.edu: http://www.academia.edu/4303965/Jualah_in_Shariah_Its_Rules_and_Applications_i n_Business_and Finance Muhammad, H. (2010). e-muamalat. Retrieved October 29, 2014, from http://www.emuamalat.gov.my/sites/default/files/kertas_ilmiah/2010/04/MLM.pdf Musa. (2012, March 17). A Big Message. Retrieved October 29, 2014, from A Big Message: http://www.abigmessage.com/saudi-arabia-multi-level-marketing-is-described-asharam Nasir,

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