💀 Death to Pyramid Schemes!
Pyramid schemes have been trapping innocent people since time immemorial. But the government is finally putting an end to this. Here's how.
If you are a true blue Indian, chances are that someone in your neighbourhood sold Tupperware, Oriflame or Amway products.
For millions of Indians, these companies are a reliable side-hustle, giving them a much-needed boost to their incomes.
But the government is not happy with this growing industry and is introducing new rules to regulate it. More specifically, it is banning companies from promoting pyramid schemes. Why?
Multi-Level Marketing 101
Companies like Tupperware, Amway, and Oriflame are direct selling companies. This means that they sell their products directly to customers. And we mean directly. Instead of just opting for online sales like D2C (direct-to-consumer) brands, they focus on having their salespeople go door-to-door for sales.Â
When a company opts for such a model, the key to its success is having more salespeople. Only then can they reach more people, and bag more sales.Â
So, many of these companies have a system, where a salesperson is paid a commission for introducing new people into the company pipeline. The newly inducted salespeople are also incentivised to bring in more people and so on.Â
This scheme is called a multi-level marketing scheme, because it involves multiple levels, duh! It is even called a pyramid scheme because of its pyramid-like structure.Â
For some, these direct selling projects and multi-level marketing schemes are a godsend as they help them make ends meet. And for many Indian housewives, they are a way to financial freedom. Amway has over 550,000 direct sellers in India, of whom 60% are women. Meanwhile, Tupperware has over a million direct sellers, of which 70,000 are women.
Sounds great, no? But then, why is the government against these schemes?
Well, because where some people see the potential for good, others see the potential for fraud.
Fraudsters found multi-level marketing schemes to be the perfect way to manipulate and defraud innocent people. So, they formed fake companies which had the same basic principle: Get people to recruit more people to sell products.Â
But, there was a catch.Â
If you got recruited, you had to pay the company cash or buy products worth a certain amount. And the main way you could earn money was by adding new people to the pipeline.
One example of such a company is QNET, a multi-level marketing company, headquartered in Hong Kong. To become a direct seller for QNET, people first had to pay lakhs of rupees only to get sketchy products. To get back their money, they essentially had to drag others into the same hole, continuing the vicious cycle. So far, QNet has defrauded people of over Rs. 1,000 crores!
Another such company was Future Maker Life Care Global Marketing Pvt. Ltd. which robbed people of Rs. 1,200 crores. The company had not only asked each direct seller to pay Rs. 7,500 up-front but also to introduce two more sellers.Â
Now, you must be wondering why people would pay to work, right? Because they are told tall tales and shown big dreams. These companies tell them that they could easily get back their money by recruiting others and selling a certain number of products.Â
They are told they can earn a full-time salary just by working part-time.Â
And as greedy as we are, this get-rich-quick idea appeals to many.Â
But sadly, such companies just keep sucking in more and more money from these people and ultimately disappear one day.Â
So, the government of India has finally decided to take strict action and regulate this Rs.16,776.2 crore industry that employs over 7.4 million people in India.
The Government's Action
To be fair, the government already had issued rules against such schemes. Even the RBI had warned people to not fall for them. But these actions weren't enough. So, the government is now introducing tougher rules.
First, all direct selling companies now need to register themselves with the government and have at least one physical office in India. This way the government will be able to track them better.Â
These companies also need to keep a record of all their direct sellers. Plus, sellers will no longer be allowed to show up at a customer's house whenever they please. They need to book a prior appointment.
And all the personal and sensitive data that they collect from customers need to be stored in India.
And well, they can no longer vanish into thin air after making sales. They have to take back any defective products sold to customers.Â
And most importantly, these companies can no longer promote any kind of pyramid scheme.
Direct-selling companies now have 90 days to comply with these rules and further rules can be introduced by the state governments for state-specific schemes.Â
You can read the whole list of rules here.
What these rules will essentially do is differentiate serious companies like Tupperware and Amway from the fraudsters. These legitimate companies don't directly promote pyramid schemes as it is possible for sellers to earn money even without recruiting more people.
But how will these rules impact their business models? Will they be enough to stop fraudsters or will they continue finding loopholes in the law? We’ll keep an eye out.Â
Until next time, ReadOn.
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