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Draft bill to regulate MLMs to shield money chain business-

It appears that the bill proposed by the state government to regulate multi-level marketing companies (MLMs) may act as a shield to bypass key norms in the existing Prize Chits and Money Circulation Schemes Banning Act.

The reason: The conditions for direct marketing, suggested in the proposed draft bill prepared by an expert committee led by Industries Department Secretary K S Srinivas, entertain ‘endless chain’ business model, which results in an illegal pyramid plan, it is alleged. The draft bill says, “It shall not restrict the number of distributors that can be registered or enrolled by direct sellers under this Act or require them to enrol any fixed number
of distributors for receiving any type of commission, incentive or other benefits.”
If approved, said a senior official with the police department, “Kerala will be the first state in the world to make ‘endless chain’ or pyramid model business legal.”
“An MLM scheme becomes illegal when the products are exorbitantly priced and have unlimited distributors. If there is no limit in enrolment of distributors, it will form an ‘endless chain.’ Which means, there will be no legitimate retail sale to an end user. Whenever there is an endless chain, the company cannot sell its products at a price less than at least eightfold of its original price. It is no different from the existing models followed by companies, including Amway, which are blatantly illegal as per the PCMCB Act,” the official said.
Industries Secretary K S Srinivas was not available for immediate comment. However, IDSA (Indian Direct Selling Association), which is leaving no stone unturned for getting an early enactment of the bill in Kerala in the wake of a ‘total shut-down’ of MLM business in the state, reiterated that the government should consider this as a business opportunity. “If, at least, 10 per cent of the distributors make an income making use of the business model, why can’t we consider it as a business opportunity,” said Chavi Hemanth, secretary general of IDSA.
She was in Kerala for the last few days, meeting top bureaucrats and police top brass to explain the same. IDSA has 18 members, including Amway and Modicare. Admitting that IDSA has pressure from its members to resume business in the state, Chavi said, “There should be strict norms to curb fraudulent schemes. At the same time, it should uphold the spirit of direct selling entrepreneurship with definitional and operational clarity and be prepared with long-sightedness.” Senior police officials took strong exception to Chavi’s argument.
“There are no problems with genuine direct selling, just like what the Kudumbashree or certain book-sellers are doing. The figures submitted by an MLM company during investigation revealed that out of its 37,000 distributors in Kerala only less than 1 per cent was able to earn a profit of Rs 1 through the scheme. When 99 per cent loses their investment, how could it be considered as a business opportunity,” said an official. 

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