Saturday, 4 February 2012

Chain Money - A concern of economical drain



By: Thoudam Opendro Singh* 

Many of us would have heard of many chain money businesses like Amway or Smart Jobs or mail order, so on. I'm an expert neither in these businesses nor in general financial economics. But I would like to expose some of the obviously ugly side of such a business. 


When I heard about Amway, it had already spread all across the villages of Manipur. I was then curious to know what it was. When I discovered it's working, I couldn't stop admiring the sick brain behind it. Amway was reportedly started by an American and spread across India through NRIs. Let me explain briefly how this works with assumed figures. X is the owner or the founder of this business (the top of hierarchy). He enrolls say 10 people as member of the business, with a non-refundable deposit, say Rs.2500 for each member (actually it is about Rs.4000, out of which the member will get a package of consumer items worth say Rs.1500). So, X owns Rs.25,000. These 10 people will be the second in hierarchy or call them level-2 here afterwards. 
Now X lurches these 10 members promising some points, say 30 points for every 3 new members they bring into the enrolment and that these points will become en-cashable when the 3 members bring in another 3 members. Let's assume each of these 10 people in level-2 brings 4 members, which gives 40 more members at level-3 and 400 x Rs.2500 = Rs.1,00,000. Now X is the owner of Rs.1,00,000 + Rs.25,000 = Rs.1,25,000. 
Now with the same bait, these 40 members will try to get 3 new members below each of them. Meanwhile X enjoys with Rs.1,25,000 collected from others. After sometime assume each of the 40 members in level-3 enrolls 3 new members below them. This results in another 40 x 3 = 120 new members at level-4 and 120 x Rs.2500 = Rs.3,00,000. Now X is the owner of Rs.1,25,000 + Rs.3,00,000 = Rs.4,25,000. Now, X has enough money to pay those 10 people at level-2 since the depth of the hierarchy has gone down upto level-4. 
To make the bait attractive, X sells some cheap products at a discount of say, 20%. Wait, the item is not anything like rice or vegetable that we daily need. It can be something like tooth paste that we hardly consume one tube per month. So, by giving toothpaste worth Rs.100 at Rs.80, the member is assumingly gaining Rs.10 per month. 
The hierarchical tree graph goes like this:


X (owner)Total members
10 members at level-210
10 x 4 = 40 members at level-350
40 x 3 = 120 members at level-4170
A minimum of 120 x 3 = 360 members at level-5530
and so on.....


The profit margin that an earlier member at the higher level enjoys from the lower level is very minimal. As the tree goes deeper and deeper, the profit from the members at further level will reduce since it is shared by members of more number of levels. But the number of members grows same as the Uranium explosion of three uncontrolled neutrons for each atom. So, the small margin multiplied by the explosive number of members gives enough heat to make the members at the top-level filthy rich, but at whose expense? At the expense of those uncountable members in the last level. At a particular level, let's say there are 10,000 members who have not been successful to enroll another new member. Now, each of these 10,000 members will be loitering around to get rid of a transferable disease by catching the friends and relatives. I have seen it. Any such poor member in the village will try to convince at least 3 people in the neighbors and around to join it so that he or she gets rid of the headache and guilt of loss. To cure one infected patient, 3 more patients have to be brought in. What to do? The only cure for any unfortunate member is by transferring it to another 3 new persons. 
Smart jobs or mail orders are even worse than Amway. 
My roommate, a BE (EEE), who was then a project trainee, was desperate to get some money and joined one Smart Jobs. The bonus point was that he had the choice to withdraw from the membership with full refund!! Let's me tell you how it works. 
Smart Job or mail order does not involve any marketing, sales or buys. Assume I'm the first owner of this business. I ask 100 people to join this by paying say Rs.700 each. Now I have 70,000 in hand. Then I ask these 100 people to do that same job as me, i.e. advertise it to others and collect people who want to be a member. Let me assume that each one collect 10 new members, i.e. totally 1000 new members. Each new member again pays Rs.700 to me, i.e. 7,00,000. Now I have 7,70,000. Consequently I pay some commission to the members who have brought these newer people. What do I lose?? I gain without doing any job. So will anybody who has more new members under his hierarchy. 
Now, my roommate decides to resign. Please note that he sent a Demand Draft. Now he is issued a cheque as refund. The cheque is crossed as "Account Payee only". This poor fellow does not even have enough money to open an account, how will he get this money back? 
Please don't take it personally if any of you, my friends, has joined it. It is very unethical to earn money without any productive works. I'm not jealous if you might be a gainer, but I'm only against gaining at the cost of somebody. And the ratio of gainers to losers is very small. It is irony that even the governments allow state lotteries for some tax returns to them. 
Let me tell a similar story in US, which I heard from my colleagues rather than my eyes, but logically feasible. One American put up an online sales "50% off" on so many famous branded items, but not costly. He collects all the cheques and money through credit cards and credited into his account. This fellow finally sends off duly crossed cheques as refund with reason as "not able to give the limited offer since the response was enormous". But the cheque was marked somewhere or issued by something like "pornographic xxx" account. The people (buyers), who have received such cheques as refund, hesitated to drop the cheque and ignored since it was a small amount. Now the smart fellow who has collected a huge amount into his account will become the owner of the amounts if the cheques are not debited within the accepted time limit. So was he. When he was held "not-guilty", he still apologized for his tactics. Forgive me if this is a fake story. 
The point is "There is no magical way to generate money other than hard work and wise use of it". The term "wise" should not harm others pocket. It is even okay if you are emptying someone else's pocket by giving him some good dinner in a hotel, but not like putting him into an illusion of making him rich. Imagine the amount of money that are being pumped out of poor economies like Manipur. Please spread a word of caution to the eager youths who tend to fail in this bait.



* The writer can be reached at opendro_st@yahoo.com
http://e-pao.net/epSubPageExtractor.asp?src=news_section.opinions.Chain_Money-A_concern_of_economical_drain 

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