The arrest of Amway's India Chairman William S. Pinckney and two company directors by the Kerala police has sparked a debate within the Rs 6,385 crore direct selling industry in the country on the need for clearer guidelines governing its functioning. The three Amway India employees, who have since been granted bail, were booked under the Prize Chits and Money Circulation Schemes (Banning) Act due to a complaint filed in 2011 by distributors, making allegations of fraud against them committed in 2003.
"There is great confusion in the minds of regulators and they are unable to understand the difference between multi-level marketing and pyramid or ponzy schemes," says Amarnath Sengupta, Chairman, Indian Direct Selling Association (IDSA).
Sengupta says the IDSA has held a meeting with Sachin Pilot, Minister of State of Corporate Affairs, to explain its situation. Talks are on with the ministry, which also understands the importance of the issue following the arrests. The direct selling industry is growing rapidly and is expected to cross the Rs. 10,000-crore mark next year. It already has 500,000 distributors or direct sales agents, of whom 60 per cent are women.
The experience has shaken up Amway India and various other stakeholders: "At the very least this should have been a civil proceeding and not a criminal case," says Sengupta, who is also Country Manager at Daehsan Trading - a Malaysian-origin direct selling company offering health, personal and skincare products.
The industry has consistently represented to the Corporate Affairs Ministry that the Prize Chits and Money Circulation Schemes (Banning) Act that has been used to govern the industry is not only outdated, but also does not really address the requirements of regulating this industry. A recent paper published by FICCI also highlights this. "Our plea is that the direct selling companies should be excluded from Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS). As per our understanding, there is no financial circulation undertaken by these direct selling companies often also referred as multi-level marketing companies," says the paper.
Kerala and Rajasthan are the only two state governments which have guidelines for the direct selling industry. However, according to industry observers in the recent Amway India case, the local police did not adhere to the state government laid down guidelines but mistakenly used the Prize Chits act.
The IDSA has 19 member companies and requires members to strictly adhere to rules. "Our members follow a code of ethics," says Chavi Hemanth, Secretary General, IDSA. According to her, all member companies offer mandatory buyback guarantees of unsold inventory from distributors within a stipulated time. Member companies also offer a money-back policy to dissatisfied consumers and also a 'cooling-off' period whereby someone who signs in to become a direct-selling agent can change his or her mind and opt out.
Harish Bijoor, Brand Strategy Specialist and CEO, Harish Bijoor Consults, believes banning or eliminating pyramid marketing schemes that make money by mere recruitment of agents rather than from sale of products, would be a step in the right direction. Many countries, including China, have done so.
He adds that companies such as Amway have shown a lot of foresight by running a proper communication campaign. They even have the ability to operate in a common market place. "If the pressure on imposing a ban on them grows, it might force many responsible (direct selling) companies to take their brands to the common market place,"he says.
Given the potential of growth of the direct selling industry and its ability to increase household incomes and thereby contribute to tax revenue, the industry today is in a better position to seek more clearer norms.