RBI cautions public against multi-level marketing schemes
01 January 2015
The Reserve Bank of India (RBI) has cautioned the public against multi-level marketing (MLM) activities that promise quick and easy returns on successive flows of investment through enrolment of new subscribers.
RBI has cautioned investors not to fall prey to unscrupulous entities where income under such schemes comes mainly from enrolling more and more members from whom hefty subscription fees are taken rather than from the sale of products they offer.
Under the so=called MLM schemes, it is 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 the pyramid are the ones that are affected the most, RBI pointed out.
RBBI has advised members of public not to be tempted by promises of high returns offered by entities running multi-level marketing/chain marketing/pyramid structure schemes etc and said joining such schemes can result in direct financial losses and that they should in their own interest, refrain from responding to such offers in any manner.
The Reserve Bank has also said that acceptance of money under money circulation/multi-level marketing/pyramid structures is a cognizable offence under the Prize Chit and Money Circulation (Banning) Act 1978.
RBI has also asked members of public coming across such offers to immediately lodge a complaint with the state police.