Is Network Marketing Permissible Under Islamic Contract Principles?

Answered by Shaykh Muhammad Carr

Question

Is it permissible to participate in a marketing business that follows a network marketing structure, where participants earn income through direct and indirect referrals, team bonuses, travel commissions, and residual income generated from team growth?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. Thank you for your question.

Ikrima held that the verse, “And that each person will only have what they endeavoured toward,” applies to communities before us. A distinctive feature of the Muhammadan community is that its members may share in one another’s endeavours. [See: Ibn ‘Ashur, al-Tahrir]

It is permissible to participate in a marketing business that follows a network marketing structure. Income from direct sales is permissible and based on a Ji‘ala arrangement.

Income from indirect sales can be construed as an earned agency fee or a gift from the second-tier salesperson.

Income from Direct Sales

Income from direct sales is based on a Ji‘ala arrangement. Ji‘ala, legally defined, involves committing to pay a stipulated recompense in exchange for a known or unknown service. [Khatib, Mughni al-Muhtaj]

This type of contract is based on the narration of Abu Sa‘id al-Khudri, who recited the Fatiha to successfully cure a man stung by a scorpion in exchange for thirty sheep. The Prophet (Allah bless him and give him peace) affirmed such transactions and requested a portion of the flock be assigned to him.

In a Ji‘ala contract, the recompense must be clearly defined. Commissions, often calculated as a percentage of the selling price, exemplify this principle, as the selling price is predetermined, thereby establishing the commission amount. Khatib al-Shirbini elucidates this concept, stating, “If a person specifies, for instance, that whoever returns my slave will receive his clothing or a quarter of his value, they will be entitled to the agreed-upon amount provided they are aware of its terms.”

Income from Indirect Sales

Commission on indirect sales—also known as referral commission, override commission, or influence commission—sits at the intersection of agency law, contract law, and commercial incentive compensation. It refers to an arrangement in which a person is paid when a sale occurs that they did not directly close, but which is attributable to their efforts, relationships, or sales channel. This arrangement is entirely contractual, meaning there is no single universal legal construct; rather, its terms are defined by the parties involved.

Accordingly, commission on indirect sales is permissible, provided all relevant parties are aware of and agree to the terms and conditions. The Prophet (Allah bless him and grant him peace) said,

“Muslims are bound by their agreements.” [Abu Dawud]

In this structure, the second-tier salesperson agrees to give a percentage of their earnings to the principal in return for facilitating the opportunity.

This may be construed as a unilateral promise to gift the stated percentage, which renders this leg of the arrangement non-commutative. Alternatively, it may be construed as an ongoing agency fee, paid as a percentage of each subsequent sale.

Uncertainty Regarding the Recompense

In specific Ji‘ala arrangements, uncertainty regarding the recompense is overlooked. As stated by Dimyati in I‘anat al-Talibin,

“It should not be claimed that the permissibility of employing someone to perform Hajj in return for covering his expenses (rizq) contradicts the requirement that compensation be known, because we hold that this is not an ijara contract, but rather a form of Ji‘ala. In J‘iala, uncertainty regarding the recompense is overlooked.”

This category of Ji‘ala, therefore, forms the central basis for permitting recompense that is not fully specified at the outset.

I pray this is of benefit and that Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.