Is MLM legal in South Africa? Spotting a pyramid scheme

A friend sends you a voice note about "a business opportunity". There is a starter pack, a WhatsApp group and screenshots of people's payouts. Is it legal?

It comes down to one question: where does the money come from?

This guide explains what South African law says, how a real case played out, and what to check before you pay anything.

The short answer

Multi-level marketing (MLM) is also called network marketing or direct selling. It can be legal in South Africa when people earn mainly from selling real products or services to customers.

Pyramid schemes are banned. So are two close relatives: chain letter schemes and multiplication schemes. The ban is in section 43 of the Consumer Protection Act.

What the law says

Section 43 of the Consumer Protection Act says a person must not promote, or knowingly join or take part in, any of these:

• A pyramid scheme. People earn mainly from recruiting new members, rather than from selling goods or services.
• A chain letter scheme. New members pay in at the bottom level and move up as more people join below them.
• A multiplication scheme. Someone promises a yearly return of at least 20% above the Reserve Bank's repo rate.

Two details are worth knowing.

A real case: Up Money

Up Money spread on social media during the 2020 lockdown. According to the government's statement and news reports:

• New members paid a once-off joining fee of R180 and then had to recruit five people.
• Rewards such as meat packs, groceries and cash grew as more people joined below you.
• The scheme received more than R42 million between 4 May and 2 July 2020.

Up Money called itself a stokvel. In March 2021 the National Consumer Tribunal declared it a pyramid scheme and fined it R1 million.

A meat pack and a friendly name did not change what it was. What mattered was where the money came from.

What legal direct selling usually looks like

• You can earn by selling to customers, without having to recruit anyone.
• Starting costs are small. You pay for a basic kit, and you can start selling soon after.
• You are not pushed to stock up. Many legitimate companies will buy back unsold stock if you leave.
• Most buyers are real customers who want the product, rather than members buying to stay in.

Many direct-selling companies belong to the Direct Selling Association of South Africa (DSASA). Members agree to its code of ethics, which an independent code administrator enforces. Membership is worth checking, as one sign among several.

Warning signs

• A big payment before you get anything, often called a joining fee, an "upgrade" or a training package.
• The pitch is mostly about recruiting. You hear more about "building a team" than about the product.
• Most buyers are members. Sellers buy the product themselves to qualify for bonuses.
• Monthly buying to stay "active" or to keep your rank, even when you have stock you haven't sold.
• Returns that sound too good, or are promised as certain, especially on money you hand over.
• Pressure to decide today or to sign up family members first.

Here is a simple test. Imagine nobody new joined for six months. Would members still earn from selling to real customers? If the honest answer is no, the money depends on recruits.

Try the eight pitches in our quiz and see if you can tell them apart:

Before you hand over any money

1. Ask what share of sales goes to customers outside the network.
2. Add up the starter kit, monthly minimum order, events and training before you count any income.
3. Ask whether the company buys back unsold stock if you leave, and get the answer in writing.
4. Check whether the company is a DSASA member on the association's website.
5. If you are promised returns on money you hand over, search the FSCA's register of authorised financial services providers first.
6. Don't borrow to join, and only use money you could afford to lose.

If you have already joined

• Stop paying in, and don't recruit anyone else.
• Keep a record of what you paid, who you paid and the messages you received.
• Lodge a complaint with the NCC. It takes complaints online through the e-Services portal on its website.

Not sure about a specific message? Paste it into our free scam checker. For the bigger picture, read our page on MLM and network marketing and our guide to online income scams in South Africa.

Looking for something that actually fits you? The free test compares real ways to earn, online and in person, against your skills, time and budget.

Questions people ask