Remember Amway fraud? BEWARE of THESE entities before investing! In 2023, India witnessed an alarming surge in the launch of over 400 new multi-level marketing (MLM) pyramid schemes, marking the highest in the past five years. This revelation comes from Strategy India, a consultancy specializing in policy, compliance, and direct-selling, affiliated with the Indian Direct Selling Association (IDSA).
Remember Amway fraud? BEWARE of THESE entities before investing! Multi-level marketing scheme launch highest in 5 years
In 2023, India witnessed an alarming surge in the launch of over 400 new multi-level marketing (MLM) pyramid schemes, marking the highest in the past five years. This revelation comes from Strategy India, a consultancy specializing in policy, compliance, and direct-selling, affiliated with the Indian Direct Selling Association (IDSA).
Strategy India, which plays a crucial role in monitoring such activities, has raised concerns about the proliferation of dubious schemes, listing names like Mission Green India, Jivan Daan, Dhan Vriddhi, and Capcha Pay on its scam alert. Shockingly, the consultancy estimates that there are currently more than 4,000 such schemes in operation. Tracking these entities proves challenging as they often lack functional websites or traceable contact addresses.
These schemes typically operate on money-circulation networks, where existing investors are paid using funds collected from new participants rather than generating profits. Exploiting loopholes in consumer protection laws, many of these entities go unchecked. They attract investors by promising exceptionally high returns in short periods, primarily targeting individuals from low-income groups. Once the influx of new investments slows down, the promoters shut down the venture, absconding with the collected funds.
Pranjal Daniel, Chief Strategist at Strategy India, emphasizes the need for revising the Consumer Protection (Direct Selling) Rules to eliminate ambiguities and loopholes. He suggests the establishment of a central committee to evaluate and monitor all MLM operations, a crucial step in curbing complex money circulation schemes falsely claiming to enhance investors’ wealth through investments in forex trading, cryptocurrencies, and NFTs.
While the Ministry of Consumer Affairs modified the Consumer Protection (Direct Selling) Rules in 2021 to distinguish between fraudulent pyramid schemes and legitimate MLM players, further clarity is deemed necessary. The ministry specified that the phrase “through a network of sellers” should be replaced with “directly selling through a network of sellers.” However, executives argue that more comprehensive definition adjustments are required, particularly in understanding what constitutes a network of sellers.
Vivek Katoch, Chairman of IDSA, representing reputable companies like Amway, Oriflame, Tupperware, Avon, and Herbalife, underscores the need for additional clarity in the Consumer Protection Act. He stresses the importance of distinguishing between legitimate direct-selling companies with MLM models and fraudulent MLM schemes designed to defraud people, commonly known as pyramid or Ponzi schemes.
Legitimate companies, offering a range of products from daily essentials to cosmetics, market their goods directly to consumers through their network of sellers, differentiating themselves from fraudulent schemes operating with deceptive intentions. Despite recent regulatory adjustments, the battle against such fraudulent schemes requires ongoing vigilance and regulatory refinement to protect consumers and maintain the integrity of legitimate direct-selling businesses.
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