Chit fund scams in the news may have prompted the arrest of Amway India’s chief Bill Pinckney in Kerala last fortnight (he was later released on bail), but this may be an opportunity for India to consider the regulation of direct sales undertaken by ‘multi-level marketers’ who operate as part of a member-get-member pyramid scheme and are incentivised to sign more and more people on (who must shell out money to get started). This last aspect, according to the cops who caught Pinckney, an American, means that such activity should be under the purview of India’s Prize Chits and Money Circulation Schemes Banning Act. Enacted in 1978, the law’s aim is to “penalise any scheme where one tries to recoup an investment by recruiting more people down the line”, says corporate lawyer Deepak Kapoor.
Amway, however, protests that since it operates a network of individuals who sell products of value to users, it should not be compared to a Ponzi scheme. Even its member-get-member aspect, this direct-selling firm claims, has no malafide intent. And there are other multi-level pyramids in operation too. “We need a clear exclusion from the Act, which essentially penalises any scheme that promises quick and easy money and is also contingent upon further enrolment of new members,” says Amarnath Sengupta, chairman of the Indian Direct Selling Association. Under the law, those two conditions—a promise of easy money and need of new enrolment—are necessary for a scheme to be called a Ponzi one. Direct selling firms make no promises of easy gains, says Sengupta; they place emphasis on hard work instead, and force no agent to recruit others.
Critics of the Amway model point out that even if they force no one, their agents are rewarded on the basis of their success with network expansion. Their sales pitch is mostly about signing up others, not how useful the products are. The company holds regular recruitment conferences to showcase how some of its agents—mostly at the top of the pyramid—have become rich.
This lures many naïve people, who do not realise how far down the hierarchy they are, to sign up in the hope of getting rich too. The trouble in India is that the products on offer are expensive, so their market scope is limited and their network cannot expand beyond a point. “That is where aspects of cheating and breach-of-trust come in,” says Kapoor, “especially for those who cannot get new members and feel wrongly trapped into buying products that many allege are much too over-priced.” All this does deserve regulatory scrutiny.