MUMBAI: The Reserve Bank of India on Thursday cautioned the public against multi-level marketing activities so that investors do not fall prey to unscrupulous entities.
Typically, most of these entities operate as multi-level marketing, or pyramid structure or chain marketing that works on the principle of promising easy money on enrolment of new members.
While the RBI did not name any organisation, some well-known global organisations are known to be running such operations where a member enrolled earns a larger share of his income mainly by enrolling more new members. The products of such companies are sold through such networks but often these companies are known more for their members rather than their products.
As per the modus operandi, 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, RBI said.
“Income under such schemes mainly comes from enrolling more and more members from whom hefty subscription fees are taken rather than from the sale of products they offer.
“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.’’
“Acceptance of money under money circulation or multi-level activities, or pyramid structures is a cognizable offence under the Prize Chit and Money Circulation (Banning) Act 1978,” the RBI alerted the public.