The network marketing industry is rapidly developing worldwide, reaching a total sales volume of over $300 billion in 2023. In the Muslim community, such trends exacerbate the dilemma regarding the compliance of this promising business model with the strict laws of Sharia.

In this article, we discussed whether network marketing is permissible in Islam and how to create an MLM business according to Sharia.

Network marketing in Islamic law

The system of Islamic law (Sharia) not only defines the rules of behavior for Muslims in various aspects of life but also strictly regulates the business environment. There is a common belief that according to fatwas (Islamic theological conclusions), network marketing is prohibited. In reality, such prohibitions were based solely on the activities of local entrepreneurs who created financial pyramids, calling them network marketing.

The structure of network marketing and financial pyramid schemes may seem similar, but they operate in entirely different ways:

  • A financial pyramid is built on the circulation of money without offering any real products or services. Here, each participant initially invests their own money and then receives a percentage from the investments of people who registered under them. As the number of participants and their invested money increases, so does the income of those who joined the company earlier. This type of activity is categorically prohibited by Sharia.

  • Network marketing (MLM) is based on direct sales of products or services through a network of independent trade partners - distributors. In such a business model, each distributor earns income in the form of commissions from their own sales and the sales of participants they have recruited.

Based on the principles of Islamic law, network marketing can be either haram (prohibited) or halal (permitted). It all depends on the specifics of the company's products, the characteristics of its operations, the structure of the compensation plan (marketing plan or bonus plan), and a multitude of other factors.

Haram Network Marketing

In Islam, a business is considered haram when it contradicts the laws and rules of Sharia. The same applies to network marketing, which is considered prohibited under the following conditions:

  1. the absence of a real product or the sale of products at a price significantly higher than their actual value;

  2. the promotion of prohibited types of goods or services, including interest-bearing loans, gambling, alcoholic beverages, and pork;

  3. entry into the company's network structure requires distributors to pay a certain fee without purchasing products;

  4. the use of fraud and deception to attract new partners and clients - promises of quick and huge income, false descriptions of product properties;

  5. regardless of their activity, distributors who joined the network earlier receive more profit than those partners who joined later.

Network marketing is also haram if the bonus plan includes types of rewards that are not permissible under Islamic norms:

  1. rewards for recruiting new partners, even if these newcomers do not purchase any goods or services from the company;

  2. rewards based on the number of participants recruited into the network, rather than on the volume of sales made. This leads to the unfair enrichment of some people at the expense of others;

  3. rewards that depend on the value of stocks and other financial instruments in which distributors have invested. They are prohibited because they carry the risk of losing money for partners;

  4. rewards that are paid for performing illegal actions, such as spreading false information about products or promises made by the network company;

  5. rewards that are either too high or too low to be fair in relation to the efforts of distributors;

In general, distributors receiving passive income from sales made by their recruited participants is permitted by Islamic law, provided there is a fair and lawful exchange. That is, when all network participants agree to the terms of the marketing plan, and the plan itself does not contain prohibited bonuses. However, the nuances of the rules and restrictions regarding conducting network business in Islam also vary in different countries and regions.

How to create a halal MLM company

The principles of halal apply to network marketing companies and referral programs just as they do to other types of business. Among the general principles of halal business, it is important to highlight:

  • fairness - providing honest and fair conditions for each partner and client;

  • social responsibility - contributing to the development of society and improving the standard of living of people;

  • environmental responsibility - reducing the negative impact of the company's activities on the environment.

To create and develop a permitted network business in Islam, it is also necessary to adhere to certain conditions regarding the following points:

  1. Company products:

  • all promoted products must be permissible under Sharia, meet the real needs of buyers, conform to generally accepted quality standards, and match the specified characteristics;

  • the price at which the company's products are sold should not be significantly higher than the cost of market equivalents.

  1. Cooperation between distributors and the company:

  • distributors should have a transparent and clear understanding of their duties, rights, and potential for earning;

  • registration of partners in the network structure of the project should be completely free of charge;

  • there should be a training system in place that helps distributors improve their sales skills and team management;

  • all commissions should be paid to partners promptly - within the terms specified by the company;

  • network partners should have the right to return unsold goods or leave the company without any obstacles.

  1. Compensation plan:

When developing a bonus plan for an MLM company, it is important to ensure a fair distribution of commissions and to consider that only a few types of income for network partners are permissible in Islam:

  • from personal sales - the distributor purchases the company's products at wholesale prices and sells them to consumers at retail prices, making a profit in the form of the difference between these prices;

  • from the sales of recruited agents - distributors can receive this income only by developing their own team and helping to increase sales for each recruited participant;

  • additional bonuses for active work, achieving a certain volume of sales, or other goals.

By adhering to the rules of halal network marketing, you can build an MLM business that does not contradict the rules of Sharia. However, to ensure success, it is advisable to turn to qualified contractors with a deep understanding of the nuances of Islamic laws in different regions.