© CABAR - Central Asian Bureau for Analytical Reporting
Please make active links to the source, when using materials from this website

How Does Multi-level Marketing Work in Kyrgyzstan and Can it Make You Rich? Here’s the explanation

Multi-level marketing becomes increasingly popular in the world, including Kyrgyzstan. The reason is massive unemployment that pervaded the world due to the COVID-19 pandemic, as well as the promise of high profits.

Follow us on LinkedIn

Multi-level marketing as one of the forms of business became known and notorious a long time ago. The prehistory is bubble companies whose schemes resembled the multi-level marketing, as well as the frustrated hopes of the victims of such businesses and “promises of gold mountain” by these companies.

Is it true that one can spend 2-3 hours a day and make good money? Who are they – the main victims of the multi-level marketing? Can one get their money back from the multi-level marketing and which methods do companies use? Here’s the explanation by lawyer Gulchekhra Murzakhmatova, as well as participants of the multi-level marketing.

What is a multi-level marketing?

Multi-level marketing is the creation of a network of partners and consumers of the company’s products, or distributors. They, in turn, create their own network of distributors and so on indefinitely. A distributor earns certain interest from every sale within their network.

The main purpose of the multi-level marketing is to sell goods or services by covering the maximum number of people.

Kyrgyzstan has no specific laws on network companies, as well as on similar kinds of activity. Therefore, it is difficult to say how many network companies work in the country. However, judging by the number of advertisements and new products, multi-level markets are definitely growing. Kyrgyzstan has over 20 network companies. They sell not only cosmetics and dietary supplements known to many, but also goods for kitchen, clothes, footwear. There’s even a network company that offers to earn and travel by cruise ships.

How do network companies work?

The main victims of the multi-level marketing are young mothers on maternity leave, students and individuals who seek remote work for a range of reasons.

The ways of involvement are diverse: your relative, sister, aunt, etc. can recruit you, i.e., direct channels. However, there’s another method: advertisements, including via an attractive post on Instagram or any other similar platform; advertisements on a billboard or a pillar. What’s most important is that the majority of such recruiters do not say it is an MLM business. You will be offered:

– to come to a meeting where you will be told the details;

– to come allegedly to an interview;

– to leave your phone number for contacts without specifying the activity of the company;

– to come to the company’s presentation.

Very rarely do advertisers say honestly that this is an MLM business.

What is the structure of the MLM business?

There are a few models of MLM business: binary model provides for involvement of two individuals who must recruit two more people and so on. The matrix is when you recruit people and earn interest not only from your down line, but also from the whole business. Your network can include 300 and more people.

Here’s the example: the network company works under the matrix principle and encourages their partners. Your purpose is to recruit 5 individuals who, in turn, must recruit 5 more persons. The first down line of your people is your direct partners whom you motivate and train. The second down line contains 30 individuals [each of your 5 recruits 5 persons]. The company takes you to a certain level or position and you earn interest for each recruited partner not only from your first down line, but also second, third, and so on. You are assigned a new rank for every new level achieved. This pattern continues until you reach the level of a director.

What are the pitfalls of the MLM business?

Network managers advertise their big profits earned from the MLM business by working only 2-3 hours a day. But this is not so. You would rather spend more time and money than get profit: constant phone calls, meetings at coffee shops, etc. Moreover, it is quite difficult to quit the system.

Only the people that start the supply chain get big profits.

Can you make money from the MLM business?

You can make money in the network business, but it is difficult. There are three ways of making money:

Interest from recruited partners. You earn a certain interest from every person recruited. The more people you have recruited, the bigger the amount. But it is important to retain the network. If your distributor leaves the project, you will have to recruit someone else. It would have impact on your earnings, respectively.

Getting bonuses. Many MLM companies offer premiums and bonuses for certain activities. For example, if you have 30 people in your down line, you get a new status, and the company will reward you for that.

Reselling. For example, you are a participant of the MLM business in household chemicals or cosmetics. According to the company’s rules, you get the products at a reduced price and can sell them at retail prices. The mark-up percentage varies from 15 to 30 per cent. Your earning is the profit margin.

Does a MLM participant have a regular income?

No, he/she does not. A MLM participants lives on interest and the salary depends on partners recruited: you have income one month and no income another month. You will have no salary, sick or maternity leaves. Besides, such companies do not make official payments, i.e. they do not pay taxes.

MLM products are not sold in stores?

This is unprofitable for the company. A MLM company means direct sales. A shop assistant will never be as motivated as the person whose income depends fully on sales.

What are the disadvantages of the MLM?

Few people can succeed in MLM business. They can achieve first results within 6 months up to 2 years. Therefore, there are the following disadvantages of the MLM participant:

1) Negative attitude of the people to the MLM business. This is related to the fact that in Kyrgyzstan, just like in any other former Soviet country, the majority of people are not used to this format of work, so almost every MLM business has proved to be as a scam in most cases.

2) Possible deterioration of relations with close ones: friends, relatives and colleagues because your first down line of distributors will consist of relatives, friends and colleagues who may take your initiative negatively.

3) High risk of failure. This is related to the fact that most people you want to recruit to the project will repel your offer. According to the statistics, up to 95 per cent of negotiations end in failure. Only few individuals can give consent to your offer after careful consideration.

4) Psychological pressure will be imposed on you from your mentor [a person that recruited you] and your immediate circle. It is unprofitable both for the company and for your mentor to disrupt the chain of your distributors. The companies motivate their partners strongly via trainings. They promise to them real property, cars and permanent income that will be growing exponentially.

The immediate circle will take your participation in the MLM business negatively because this work has low efficiency.

5) Unstable income. An MLM participant has no permanent income, he/she lives on interest. The interest will accrue only if you can recruit people to the project. Therefore, in the beginning you can even have no income at all.

6) Remote work that can take more time than office work. The life of the MLM participant means constant meetings and persuasions. You can hold up to 5 meetings a day that can last 1 hour each. Moreover, it does not necessarily mean that every meeting will be successful.

What are the advantages of the MLM business?

Standard retail companies usually spend nearly 30 per cent of their budget on advertising. MLM participants have a different method – you don’t have to spend money on advertising. People who become partners of the MLM company get income from the money saved on advertising for distributing information about the product. There are other advantages of the MLM business:

1) Teamwork. Every participant of the MLM business is interested in increasing their down line and each of them is interested in making more sales. Besides, MLM companies often reward publicly for the result, which is an advantage.

2) Little chance to buy a fake product. The MLM business has no intermediaries and the product goes from the supplier to the customer directly. Moreover, participant of the MLM business is not interested in selling low quality product. If the MLM company sells low quality product, it won’t exist in the market for a long time.

3) Business school. It’s important for the MLM participant to be sociable in order to promote a product or service. Therefore, they acquire knowledge about marketing, sales, advertising, public speaking, communications during the promotion.

4) Free training. A good MLM company focused on quality communication often holds trainings and meetings for their partners.

5) The MLM participant’s job has no fixed schedule, so they can work remotely.

Is MLM business a bad thing?

No, it is not. It’s just another format of work. If it is a good MLM company that performs its obligations to partners, you will get your interest. But it is not easy to get it.

There are successful examples of the MLM business in the world. According to the ranking of Direct Selling News, by results of 2020 the following MLM companies became top 3 companies: Amway with income 8.4 billion dollars, Herbalife Ltd. with income 4.9 billion dollars and Avon Products Inc. with income 4.76 billion dollars.

What does the law of Kyrgyzstan say about the network business?

The multi-level marketing per se is not prohibited by law in Kyrgyzstan. It belongs to the field of civil law relations. A citizen entering these relations signs a contract. The republic does not define the multi-level marketing in law. Therefore, it is almost impossible to provide exact statistics regarding offences in this sphere.

However, in April 2019, the Spiritual Administration of Muslims of Kyrgyzstan issued the fatwa (religious order for the Muslim community) on prohibition of such kind of business.

“The multi-level marketing and all its kinds contradict the principles of the Islam and therefore are prohibited. The Islam prohibits wastefulness, deduction of commission fees, membership fees, nonconformity of quality of advertised products, payments for recruitment of people. All these things contradict the principles of Islam,” according to the muftiyat statement.

Dietary supplements and MLM business – are they legal?

Currently, one of the most popular products in the MLM, in addition to cosmetic and other chemicals, are dietary supplements. And among the top three successful MLM companies are Herbalife, which is also popular in Kyrgyzstan, and Chinese company Tienshi.

Bermet Baryktabasova, the specialist in evidence-based medicine of the Ministry of Health, said that the Department of Drug Supply had earlier dealt with control over dietary supplements, but in 2017 the law on medications removed them from control of the Department and made the Department of Disease Prevention responsible for them. Since 2017, the activities related to distribution of dietary supplements have increased and currently they are not under control: they are not registered and it is still unknown how many kinds of dietary supplements are imported to the country.

Previously, dietary supplements were registered together with medications as dietary supplements, but now the people choose them as food additives. However, this kind of activity needs to be licensed anyway, or else it will be deemed illegal.

“The situation with dietary supplements is very bad now. They are sold spontaneously and illegally, including on the markets. When they were registered, there were only 2 thousand denominations, but now their number is unknown. There are so many products, especially in the regions and villages. They must be accounted and supervised, taxes must be paid. The tax service loses much money, and the inspection does not monitor the safety of dietary supplements,” said Bermet Baryktabasova.

In 2013, distribution of dietary supplements by health facilities was prohibited; a doctor may not sell such supplements.

Speaking of the latest events, the representative of the ministry of health said that the united database of dietary supplements of the EAEC will start working in 2021. It will contain the general list of permitted dietary supplements.

Do they inspect cosmetics?

Despite all the licensing rules, the cosmetics market in the MLM business is huge and almost unmanageable. No one keeps records, although documents and certificates are a prerequisite for this activity.

“Cosmetics is a need for beauty and does not directly relate to medicine, but applies more to paramedicine. If Botox and syringes are used, then the state must understand that this is an uncontrolled intervention. There must be requirements to sanitation and state supervision to ensure that everything meets the conditions,” said Bermet Baryktabasova, an expert in evidence-based medicine.

The Department of State Sanitary and Epidemiological Surveillance of the Ministry of Health is responsible for the supervision of cosmetics and chemical substances. It also carries out licensing.

Mandatory conditions for the implementation of activities by cosmetic and similar companies are:

– compliance with sanitary norms and rules, hygienic and technological requirements, environmental safety requirements;

– availability of a sanitary and hygienic conclusion of the local sanitary and epidemiological station on the availability of conditions for the implementation of the declared activity;

– availability of hygienic certificates for each type of goods, products issued by the bodies of the sanitary and epidemiological service of the Kyrgyz Republic;

– availability of documents for the right to own the premises;

– contracts with suppliers of raw materials, products.

In addition, there is a technical regulation “On the safety of perfumery and cosmetic products” applicable to all EAEU countries. According to it, the state registration of these products is carried out at the stage of their putting into production, and if the products came from third countries – before they were imported to the EAEU country. The certificate of state registration is issued indefinitely.

What were the machinations in the MLM sphere in Kyrgyzstan?

The legislation of Kyrgyzstan does not directly say anything about multi-level marketing. However, article 204 of the Criminal Code “Fraud”, article 211 “Illegal business or banking activity”, article 213 “Pseudo-entrepreneurship”, article 214 “Organisation of pyramid schemes”, as well as non-compliance with the legislation “On consumer protection” can be applied to them.

Basically, the violation of the law by the MLM business is associated with the evasion of mandatory certification, discrepancy between the declared consumer qualities of the products and the real quality.

Over the past two years, law enforcement agencies have reported two cases of fraud MLM business.

In the first case, in December 2018, a woman from Tokmok created an MLM company and fraudulently embezzled 17 thousand euros (20.7 thousand dollars). Moreover, she was suspected of other 29 cases. A criminal case was opened against the fraudster.

The second case took place in August 2019, where Questra World was involved, this time in Bishkek. The woman, promising high payments, repeatedly embezzled large amounts of money – from 1 to 9.8 thousand dollars.

In order to bypass fraud MLM companies, in terms of legislation, it is necessary to introduce the concept of “multi-level marketing” into the law of our state or expand the concept.

Can you take your money back from the MLM business?

Lawyer Gulchekhra Murzakhmatova recommends to make and study the agreement that will contain the conditions for conducting the MLM business before joining the multi-level marketing.

Refunds depend on how “ethical” the particular business is. One will have to prove that this is a product that “deceives” the consumer. In other words, most likely there is the product, but it is worthless, and the income of the MLM business is like a financial pyramid scheme – by recruiting new participants. In this case, the heads of the MLM business can be held liable under article 214 of the Criminal Code of the Kyrgyz Republic “Organisation of financial pyramid schemes.”

Multi-level marketing and financial scheme pyramid: are they the same?

No, but they are similar. Many people compare network marketing to financial pyramid schemes. The schemes are similar, but there are two main differences – no one forces a person to invest large amounts of money, and second, a person works in the MLM, and does not expect a “miracle”.

However, there are MLM companies that use illegal actions, including promoting a low-quality product or service.

Here are the following differences between the pyramid scheme and MLM:

– a large entrance fee, which is not justified;

– there is no product or service. Or it is available only on paper;

– there are no documents, contracts, checks, etc.

– promises of fast income.

If you have found a spelling error, please, notify us by selecting that text and pressing Ctrl+Enter.

Spelling error report
The following text will be sent to our editors: