APPLICATION OF JUALAH 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 jualah 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), Jualah

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
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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.
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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-ashyaa
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

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. Dairah 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).
Jualah 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
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(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, jualah means the rewards is based on result or achievement, not
on effort. The issue of rewards or payments with jualah concept or commission through
sales of goods and services is a real pressing issue regarding MLMs businesses (Mohamed).

Jualah
The Classical Rules Concerning the Jualah
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 participants
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 eachs performance or
achievement. It is a concept of jualah.
The scholars of the Hanafi opine that the jualah 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).
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The Modern Jurists View Concerning the Jualah

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
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score straight As 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 As. 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 Jualah in Company A

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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 jualah
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)

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 jualah, 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
jualah is forbidden and prohibited in Islam. Permissible jualah is commission that is paid
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based on their achievement. In this case, Company A has given commissions and bonuses due
to their participants or members achievements. Thats why Company A has been recognized
as Shariah Compliance Company.

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