RBI warns public against multi-level marketing schemes

Cautioning the public against multi-level marketing (MLM) activities, the Reserve Bank of India (RBI) Thursday said income under such schemes mainly comes from enrolling new members at high subscription.

The central bank also urged people not to fall prey to the promise of high returns offered by unscrupulous entities operating MLM/pyramid/chain marketing schemes.

The RBI has also said that acceptance of money under money circulation/MLM/pyramid structures is a cognizable offence under the Prize Chit and Money Circulation (Banning) Act 1978.

In a statement, it said that MLM/chain marketing/pyramid structure schemes promise easy or quick money upon enrolment of members.

"Income under such schemes majorly comes from enrolling more and more members from whom hefty subscription fees are taken rather than from the sale of products they offer," the RBI said, adding the schemes make it incumbent upon all members to enroll more members, as a portion of the subscription amounts so collected is distributed among the members at the top of the pyramid.

"Any break in the chain leads to the collapse of the pyramid, and the members lower down in the pyramid are the ones that are affected the most," it said.

The RBI reiterated that falling prey to such offers can result in direct financial losses and people, in their own interest, should refrain from responding to such offers in any manner.

Members of public coming across such offers should immediately lodge a complaint with the state police, it said.