Guidelines to Direct Selling

Direct Selling, also called Multilevel Marketing (MLM) or Network Marketing, is a business strategy deployed by companies to sell their products or services. The Direct Selling companies use people who act both – as salespeople as well as buyers.

The salespeople, popularly known as Distributors or Direct Sellers or Network Marketers, used by Direct Selling companies are not directly on their payrolls. Direct Sellers earn attractive commissions for the sales they make. Direct Sellers are also incentivized for recruiting more salespeople. It helps to grow the salesforce of the company.

Direct Selling has been around in India for more than two decades now. However, during this period, many companies sprung up as Multilevel Marketing but incorporated the illegal pyramid business model. These companies duped innocent investors and earned a bad name for the Direct Selling industry. It also discouraged a lot of people from joining the industry.

The Indian government, along with boosting the Direct Selling industry, recently drafted regulations to safeguard the interests of the investors. This write-up discusses more the guidelines and steps taken by the government.

Direct Selling Companies Shot Into the Limelight During the Pandemic

The onset of the Covid-19 pandemic saw the economic and unemployment crisis deepen. Most industries struggle to sustain their operations and revenues. It forced many people to lose their jobs or take salary cuts. However, during such testing times, the Direct Selling industry stood out!

Direct Selling companies provided livelihoods to millions across the country who lost their jobs. The Direct Selling companies showed people how to attain financial freedom and become entrepreneurs.

The Direct Selling industry also supported the government with substantial revenues. And the industry was also in line with the government’s several initiatives to boost the industry in solving the economic and unemployment crisis.

Network Marketing – Catching the Fancy of Budding Entrepreneurs

Today’s consumers are tech-savvy. Today more people are hooked to the Internet than ever before. And today, we are in an era where social media networks rule!

Many are unhappy with their nine-to-five corporate jobs. Many desire to attain financial freedom and become their own boss.

The Indian government has given the vision of Atmanirbhar Bharat (Self-reliant India). The youth of today are more interested in entrepreneurship. And women are looking out for ways to generate an income from the comfort of their homes.

The Network Marketing business has caught the fancy of budding entrepreneurs. The Network Marketing business is also empowering women. The Network Marketing industry is in line with the government’s initiatives providing self-employment and women empowerment.

Government Initiatives that Boosted the Direct Selling Industry

The government initiated several steps to boost the industry to achieve a self-reliant India. The industry welcomed the government’s initiatives like Make in India, Vocal for Local, Women Empowerment, Startup India, and Skill India. It helped companies across all sectors to limp back to normalcy.

The Direct Selling industry that supported the government with substantial revenues also supported the government in solving the unemployment crisis by generating self-employment. The industry was in line with the government’s Women Empowerment initiative as more than half its employed workforce is women!

More people started getting attracted to Direct Selling companies in their quest to become financially independent and become self-reliant. To safeguard the interests of those collaborating with the Direct Selling companies, the government drafted resolutions.

Government Guidelines – The Most Awaited Step Towards Regulating the MLM Industry

The Direct Selling industry, till recently, was riddled with uncertainty concerning the legitimacy of their business models. There was no legal framework to distinguish genuine Direct Selling companies from companies that incorporated illegal Pyramid and Ponzi schemes.

The Indian government drafted the Consumer Protection Act – 2019 that defined Direct Selling. It included any person who buys products or avails services through Direct Selling as the consumer. Unfortunately, it did not come into practice.

The Department of Consumer Affairs finally took steps to formalize the regulatory framework for Direct Selling entities in India. It recently drafted the Consumer Protection (Direct Selling) Rules – 2021.

However, the foundation for the regulatory framework was laid way back in 2016 with the Model Framework for Guidelines on Direct Selling. It was a noteworthy milestone for the Direct Selling industry.

Conditions to Set up a Direct Selling Business

Any company that intends to carry out the Direct Selling business have to comply within ninety days the following set of conditions for conducting their business:

• The company must be registered legally under Indian laws.
• The company must provide an orientation session compulsorily for all newly joining Direct Sellers.
• The company must provide adequate and accurate information on all aspects of its operation to Direct Sellers.
• The company must provide its Direct Sellers with complete and accurate information regarding remuneration opportunities and related rights and obligations.
• The company must pay all dues and make withholdings from Direct Sellers reasonably.
• The company must notify and provide a full refund or buy-back guarantee to all Direct Sellers under reasonable terms.
• The company must provide a cooling-off period entitling Direct Sellers to return any goods or services bought by them.
• The company must not have promoters or key management personnel convicted of any criminal offence punishable with imprisonment.
• The company must have an office that enables consumers and Direct sellers to acquaint themselves with product prices, return or replacement of products, and delivery of goods or services. Also, it should handle post-sale grievances.

The government’s draft rules distinguish clearly between Direct Selling companies, money circulation schemes, and pyramid schemes.

It prescribes that a Direct Selling company cannot have a provision for Direct Sellers to receive incentives to recruit new participants except for the company’s sale of goods or services.

The draft rule also prescribes that the company should not ask Direct Sellers to pay any entry or registration fee for joining the business. The Direct Selling company also restricts them from compelling Direct Sellers to purchase goods or services.

Obligations that Direct Seller Must Adhere to

Direct selling is a type of retail method that involves selling products or services directly to consumers without any intermediaries in between.

Direct Sellers have the flexibility to carry out their sales from anywhere – from home, workspace, online, or non-store locations.

However, Direct Sellers need to follow certain obligations once they join a Network Marketing company.

• Direct Sellers must always carry their identity cards.
• Direct Sellers must not visit the customer’s premises without prior appointment or their approval.
• On initiation of a sale, Direct Sellers must identify themselves. They must identify the identity of their company. And they must describe the nature of the goods or services sold to their customers.
• Direct Sellers must give all prospects accurate and complete explanations and demonstrations of their products or services.
• Direct Sellers must update their prospects and customers about prices, credit terms, payment terms, guarantee terms, return policies, and after-sales service.
• Direct Seller must maintain a proper book of accounts showing details of products, price, tax, and sold quantity in a form applicable by law.
• Direct Sellers must provide correct information to their prospects and customers at the time of sale. This information includes contact details, registration number, identity proof; description of the goods or services being supplied; return policy of the company; order details, etc.

Direct Seller must not use misleading, deceptive or unfair practices. They should not make any factual representation that is not verifiable. And they must not make any promise that is not fulfillable. Further, Direct Sellers must not give false promises or advantages about their Direct Selling business.

Government Rules Will End the MLM Entities Vs E-commerce Marketplace Tussle

The drafting of the rules and regulations have been welcomed by all concerned industry bodies, including the Indian Direct Selling Association (IDSA).

The draft rules provide enough safeguards for the consumers and protect innocent people from getting duped of their hard-earned savings in the Direct Selling business.

According to the guidelines laid down by the government, any sale of any product or service of a Direct Selling company on an online e-commerce platform can happen only after their written consent.

When the rules and guidelines come into effect, it will bridge the regulatory gap for the Direct Selling industry. It will contribute towards the growth of the Direct Selling companies. And benefit all stakeholders – the Direct Selling companies, the Direct Sellers, and the Consumers.

Conclusion: Proposed rules under Consumer Protect Act will be backed legally and attract penalties.

The Indian government ministry came out with a set of guidelines for the Direct Selling industry in 2016 that were more advisory. However, the recently drafted regulations and proposed rules in the Consumer Protection Act will legally bind and attract penalties for not adhering to it.

Direct Selling is a win-win situation for the Direct Selling company, the Direct Seller, and the Consumer. The Indian government has stepped in to boost the Direct Selling industry and has drafted regulations to safeguard the interests of Directs Sellers and Consumers. These guidelines to direct selling are in place to help the entrepreneur and customers. The Direct Selling business is going to be the future of the retail business in the 21st century. Be a part of it. Join confidently. And achieve financial freedom!