New direct selling guidelines with boost sector, check ponzi schemes: industry

The government has issued model guidelines for states to regulate direct selling and multi-level marketing businesses while prohibiting pyramid structures as well as money circulation schemes. The move is expected to spur growth for the sector and check Ponzi schemes, industry stateholders believe. 

The 'Direct Selling Guidelines 2016' framework was released by the Food and Consumer Affairs Minister Ram Vilas Paswan and has been sent to the states and Union Territories for adoption.

In the guidelines, the government has clearly defined legitimate direct selling and differentiates it from pyramid and money circulation schemes to help investigating agencies identify fraudulent players. "Direct selling means marketing, distribution and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme," the guidelines said. They have also defined Pyramid Scheme. Money Circulation Scheme has the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

The new guidelines "will help in protecting consumers and help them differentiate between genuine and fraudulent schemes, besides ensure growth for the sector," Indian Direct Selling Association (IDSA) said. 

The association's Chairman Jitendra Jagota, said it "welcomes the new guidelines with open arms. This will be a very encouraging development of the industry. We wish to thank the government, especially the Ministry of Consumer Affairs, for coming out with these guidelines."

Direct seller Amway said, "The guidelines on direct selling, issued by the Ministry of Consumer Affairs, represent an important step which will both safeguard the interests of consumers, as well as identify and help protect ethical direct selling companies."

He also reiterated that the move will spur growth in the sector. 

Ficci said that the new guidelines will ensure clarity in the sector.  "Ficci congratulates the Ministry of Consumer Affairs, Food and Public Distribution for releasing the much awaited guidelines for the direct selling sector. It is a very progressive move by the government which will give a boost to Rs 72 billion industry and will help in motivating the stakeholders associated with the sector." 

He added that the sector had the potential to reach Rs 645 billion by 2025, and these guidelines will bring more regulatory clarity.

"Ficci is positive that the state governments will implement these guidelines as the sector is a major contributor towards employment creation and tax revenue," he said.  

The new guidelines

-- There are many conditions for companies entering the direct selling business, all of which need to be complied within 90 days. 

-- Direct selling companies will be required to be a registered legal entity. 

-- Direct selling firms cannot charge any entry fee from agents or compel them to buy back unsold stocks.

-- Forge agreements with direct sellers or agents, and give full refund or buy-back guarantee for goods and services sold to the sellers. 

-- The guidelines also mandate direct sellers to constitute a grievance redressal committee to protect consumers right.

-- There is a remuneration system in place for the person engaged by direct selling firms on sharing of incentives, profit and commission.

-- There is a provision for the appointment of a monitoring authority at both, the central and state level to deal with the issues related to direct selling.

-- The guidelines also prohibit direct selling entities from using misleading and deceptive or unfair recruitment practices.

-- A direct selling entity should not ask direct sellers to provide any benefit including entry fees and renewable fees or to purchase any sales demonstration equipment or material in order to participate in direct selling operations.

-- There are conditions for the contract between direct sellers and direct selling entity, saying that all such agreements should be in writing describing the material impact of the participation.

-- The agreement should not compel or induce the direct seller to purchase goods or services in an amount that exceeds an amount that can be expected to be sold to consumers within a reasonable period of time.

-- The contract should provide direct sellers a "reasonable cooling-off period" in which they can cancel it and receive a refund for goods and services purchased.

The ministry had held round of discussions with all stakeholders to frame guidelines to make a clear distinction between genuine direct-selling companies and fraudulent ponzi schemes.