Thousands of Kenyans lost their life savings, families were torn apart and lives were ruined in 2007 when several pyramid schemes went underground with an estimated Sh8 billion of more than 148,000 investors.
The biggest of them were DECI, Global Entrepreneurship, Mont Blanc Afrique, Pesanet Ltd and Acid. This is according to a report released in 2009 by the ‘Taskforce on pyramid schemes’ that was established to investigate the operations of pyramid schemes and establish the extent of their impact in the country. Despite this, many Kenyans continue to engage in and lose money to pyramid schemes.
In April this year, the Central Bank of Kenya and the Sacco Societies Regulatory Authority (SASRA) raised the alarm over increasing pyramid schemes in the country saying that such entities entice the public to place money with them and promise quick and abnormally high returns on money or acquisition of non-existence properties. This statement has however left many Kenyans disturbed by the fact that the relevant authorities have opted to only ‘warn’ us of the pyramid schemes instead of taking action to shut them down or prosecute those involved in their running.
We are currently living in desperate economic times. Companies are laying off employees, jobs are hard to come by and the unemployment rate has continued to spur upwards. Most people are looking for ways to supplement their incomes and for most, the easier and faster the way the better. Despite the promise on returns by pyramid schemes being too good to be true, they have become an everyday reality for many. Thousands have fallen victim to large losses of cash but unfortunately, most people want to keep trying their luck with these illicit money making ventures.
The Prohibition of Pyramid Schemes Bill 2012 states that a person commits an offence if he or she knowingly promotes a pyramid scheme. It is also an offence to participate in a pyramid scheme or induce another person to participate in it knowing that any benefit gained is entirely or substantially derived from the introduction to the scheme of new participants. It is reassuring the new Bill proposes tough penalties to curb bogus get-rich-quick pyramid schemes. Any person convicted of promoting or participating in pyramid schemes will be liable to a fine of Sh10 million or imprisonment for 10 years, or both.
There is a general lack of information and education of what pyramid schemes are. More often than not, those involved in pyramid schemes lie and misguide the recruits that they are involved in genuine multi-level marketing opportunities. This has unfortunately hurt network marketing companies that offer genuine business opportunities for thousands of people to earn income to support their families. According to World Federation of Direct Selling Association(WFDSA) 2015 statistics, more than 103 million independent sales representatives are part of the global direct-selling industry, accounting for more than US$183 billion in annual retail sales.
The taskforce on pyramid schemes went ahead to identify three key features that differentiate Multi Level Marketing (MLMs) companies from the illegal pyramid and ponzi schemes as follows;
The emphasis of pyramid schemes is on recruiting more people to the sales network while MLMs focus on the sale of products and services that have inherent value.
Commissions earned from MLMs are based on the sales of products or services. Pyramid scheme participants are paid primarily using money received from new investors.
MLMs are sustainable as they are based on the continued sale of products and services to consumers. Recruitment of new people to the sales network is secondary. Pyramid schemes are doomed to collapse when the recruitment of new investors ceases.
Network Marketing is not an opportunity where you can earn millions of dollars overnight. Companies like Tupperware, Mary Kay, WorldVentures, GNLD, Amway and many other successful companies utilize this go-to-market business distribution model.
Mr. Kemble Morgan, General Manager for WorldVentures in Africa weighs in. “Multi-level marketing is a sales strategy that some direct sales companies use in order to increase the sales of the products or services. This is done through incentivising their sales force by offering them a commission on product or service sales generated through their network of direct sellers.
The sale of the product or service is the key focus with a second objective of increasing the size of the sales force to sell more products.For example, our independent representatives are compensated for their personal sales of our products, Gold and Platinum DreamTrips memberships, and they can also earn commission on sales their sales team make.”
WorldVentures is a direct seller of vacation and leisure club memberships, which include premium vacations at member-only prices. The company recently opened up regional offices in South Africa to serve the growing African market.
For the more driven and self-motivated entrepreneurs what was additional income to supplement their “main income” can become their sole income stream as they successfully continue to build the network of sales people. This can provide them with a lifestyle that their previous careers simply didn’t. Network marketing companies do not offer an easy way out. Unlike in illegal pyramid and ponzi schemes, entrepreneurs in network marketing put in time and hard work to earn their income.
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