The government has issued a decree on multilevel marketing with stricter regulations in a move to better manage the business model.

Under Decree No 42/2014/ND-CP, which will take effect from July 1, multilevel marketing firms must have a charter capital of at least 10 billion VND (454,545 USD).

The firms are also required to have a collateral of 5 billion VND (227,272 USD) in banks. The collateral will be used to pay the financial obligations of the firms in case the firms have to close down.

The new regulation also bans multilevel marketing firms from direct selling as pyramid schemes besides banning the firms from requiring people to pay any money or buy the firms' unauthorised goods to participate in the firms' business.

Multilevel marketing sales people are also not allowed to provide wrong or dubious information to cheat people.

According to the new decree, the Ministry of Industry and Trade (MoIT) will take responsibility of granting business licences for multilevel marketing firms, instead of municipal and provincial Departments of Industry and Trade as was done previously.

Licensed multilevel marketing firms that have no operations or have stopped operations for 12 consecutive months will have their business licences revoked.

According to the MoIT, after 10 years of presence in Vietnam, the multilevel marketing businesses have attracted approximately 1 million participants by the end of 2013. There are approximately 90 multilevel marketing firms in the country, which are local, joint ventures and foreign-owned. A majority of the firms were producers and traders of food, cosmetics and house wear.

The multilevel marketing business model is familiar in other countries; however, it is a relatively new business in Vietnam. Many multilevel marketing firms including MB24, Tam Mat Troi and Cong Dong Viet have used the business model for scamming and manipulating consumers.-VNA