Direct selling companies banned from promoting pyramid schemes

The government on Tuesday banned direct selling companies from promoting pyramid and money circulation schemes as it brought out new rules for the industry, in a move that would separate legitimate players like Amway, Tupperware and Oriflame from Ponzi scheme operators.

Direct sellers must have at least one physical location as their registered office within the country and make a declaration that they are not involved in any pyramid scheme or money circulation scheme, as per the Consum.

“These new rules would bring clarity in the marketplace and give impetus to the industry,” Rajat Banerji, chairman of self-regulatory industry body Indian Direct Selling Association (IDSA), told ET.

The sector provides livelihood to more than seven million in the country of which over 50% are women, he said. Banerji said the IDSA has been working with the government for the past two years to provide inputs on the policy.

The rules bring under its ambit both direct sellers and direct selling entities using ecommerce platforms for sale.

Time for Compliance
“Existing direct selling entities need to comply with these rules within 90 days,” the notification said.

Direct-selling companies follow a model of selling to consumers through distributors and network or multi-level marketing (MLM), instead of through traditional retail channels.

According to the new rules, direct-selling companies are required to have grievances redressal mechanisms. All companies will also be liable for the grievances arising out of the sale of goods and services by its direct sellers.

To safeguard consumer rights, companies will additionally need to provide details of goods and services they are selling, prices, credit terms, terms of payment, return, exchange, refund policies, and after-sale service. The companies would also have written confirm.

As per data published by World Federation of Direct Selling Association (WFDSA), retail size of the Indian direct selling industry was valued at $3 billion, or about Rs 22,500 crore, in 2020 with year-on-year growth of 28.3%, making it the fastest-growing market in the world. The sector employs over 7.4 million active direct sellers, it said.

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