Pyramid scheme or Money chains systems; a curse for MLM and direct selling industry.

Pyramid schemes can be defined as illegal activities or illegal schemes of MLM. And also, the Ponzi schemes that work in the MLM model. In Some parts of India, it is also called a Money chain program. These schemes are like the other side of the coin likewise a coin has 2 sides.

Pyramid schemes and other related schemes are always been a threat to the genuine direct selling Multi-Level Marketing industry. And also, to society.

• Why pyramid schemes are banned in many countries?
• How pyramid schemes are different from MLMs?
• Examples of pyramid schemes and money chains?
• Is money chain schemes are legal in India?

The main difference between Multi-level Marketing or direct selling and Pyramid schemes is how they make money and how they distribute money.

Moreover, the pyramid schemes are more like to be push marketing rather than product or service selling. The company is pushing to add more distributors in to the system. The upline distributors pushing downline distributors to add more distributors.

What is a pyramid scheme?

According to Wikipedia, “A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

Pyramid schemes have existed for at least a century in different guises. Some multi-level marketing plans have been classified as pyramid schemes”

In Multi-level marketing and direct selling, you (the one who enrolls in the system) make money by selling products or services. And also, a share of your team performance.

But different from a pyramid scheme that is you make money by enrolling new peoples into the system. The money that earned you is a loss of someone else.

What is happening in the pyramid scheme?

The main and only similarity of MLM and pyramid schemes are on recruiting more people to the systems.

While in MLM is recruiting individuals to boost up sales. But in pyramid schemes to earn money.

The main highlight is that every pyramid scheme is built to collapse the system and make money as much as possible by the company and top layered leaders.

Example of a pyramid scheme:

These types of systems are common in India during the 2000s and early 2010s. ‘Get rich quick schemes’ also called money chain schemes

You are giving ‘X’ amount of money to a company and the company promises return with-profits within a time period.

One of the famous examples is that time is,

Suppose you are investing 1000 Rs into a company for 10 newly planted trees which will get sold after few years with an excellent price for timber. And you will get a share of the profit. In addition to that, If you encourage new investors to the system, you will get extra profit on the basis of binary or any MLM plans.

On a close look what is happening

such companies are usually using the binary system because it is easier to duplicate or implement.

In the first step, you are investing 10000 Rs which is completely profit for the company.

The second step is you are recruiting 2 persons to the company. the company is earning 17000 (10000+ 1000- 3000 (binary income for the distributor).

Note: 3000 is an above-average binary income in pyramid schemes.

In the 3rd step, the company is earning 28000 the company.

4th step will be 40000 from the level itself. Total earnings are 85000 for just recruiting 15 individuals or membership IDs into the system. Earnings from scratch.

How much would such a company earn after 20 steps... Just imagine...

No one ever would balance the referral tree for more than 4 or five levels. Which means less binary income for distributors. Which means more income for the company.

The system will always same and the story always changes. The tree will be replaced by some stocks of the company or any cryptocurrency or whatever it is.

The above example is a 100% money chain system.

Those types of companies are always starting to demolishing within few years or few months. The company is always had its own targets, and after achieving that, they automatically demolish the company or simply disappear.

At the time of demolition, the number of newly recruited individuals will be high and the number of people who earned more money than invested capital Is would be very high.

They all lose their money.