The channels of financing terror network

The recent arrests of terrorists and the seizure of huge caches of explosives and detonators from Faridabad, along with the blast in Delhi, where even educated individuals such as doctors were found involved, have once again brought to light the critical role of money in sustaining terrorism. Terrorism cannot exist without funds. Every act of terror-whether a lone wolf attack or a coordinated large-scale operation-depends on a continuous flow of money.

Funds are the lifeblood of terrorism. They are used to procure weapons and explosives, train recruits, establish communication channels, maintain safe houses, generate propaganda, and even support the families of operatives who die in the line of their so-called "cause." Without this financial backbone, terrorist organisations would crumble.

Over the years, various terrorist groups-particularly those operating from Pakistan-have built a sophisticated and multilayered web of funding sources. These include the diversion of charity and Zakat funds, the narcotics trade, organised crime, counterfeit currency, hawala networks, and more recently, the misuse of NGOs and cryptocurrencies. The following sections explain the main channels through which terrorism is financed, with reference to Indian and global experiences.

Diversion of Charity

Religion and compassion-meant to serve humanity-are unfortunately misused by extremist organisations to fund terror. One of the five pillars of Islam, Zakat, obliges Muslims to donate a part of their income for the welfare of the poor. While millions of people contribute sincerely, some so-called charitable bodies divert these funds to sponsor terrorism.

Several Pakistan-based organisations function under the pretext of charity but are fronts for terror outfits. The Jamaat-ud-Dawa (JuD), a front organisation of the Lashkar-e-Taiba (LeT), is a prominent example. It collects donations claiming to operate hospitals, schools, and ambulances, but a substantial portion of the money is diverted to fund training camps in Pakistan-occupied Kashmir (PoK), to radicalise youth, and to procure arms and explosives used in attacks across India. When JuD came under international scrutiny, it floated another front, the Falah-e-Insaniyat Foundation (FIF), to continue its activities under a humanitarian disguise. Similarly, Jaish-e-Mohammed (JeM) channels money through its so-called charity arm, the Al-Rahmat Trust (ART), headed by its chief Maulana Masood Azhar.

Globally, this pattern is not new. After the 9/11 attacks, the International Islamic Relief Organisation (IIRO), now renamed the International Organisation for Relief, Welfare and Development, was found to have branches in Indonesia and the Philippines that had worked with Al-Qaeda-linked groups. Interrogation of a terrorist by Delhi Police in 1999 revealed that its Pakistan branch had also financed training centres for militants.

Extremist groups also invest heavily in creating madrasas aimed at indoctrination rather than education. Many of these, particularly along the Indo-Nepal and Indo-Bangladesh borders, are managed by preachers belonging to the hard-line Salafi school of thought. Under the cover of religious instruction, they indoctrinate vulnerable youth and recruit them for extremist causes.

The Golden Crescent

The Golden Crescent, comprising Afghanistan, Iran, and Pakistan, remains one of the world’s largest narcotics-producing regions. Vast areas of Afghanistan are controlled or influenced by the Taliban, Al-Qaeda, and the Haqqani Network. These groups cultivate opium and operate laboratories along the Afghanistan-Pakistan border, converting opium into heroin.

This heroin is then smuggled through Pakistan, Iran, and India to Europe, Africa, and other regions. The profits from this trade are enormous and are systematically used to fund terrorist operations. Pakistan’s Inter-Services Intelligence (ISI), in partnership with drug cartels and criminal syndicates, plays a key role in this narco-terror network. The impact is twofold-drug addiction weakens societies, while the profits fuel cross-border terrorism.

Crime Money and Extortion

Criminal activity is another convenient source of income for terrorist organisations. Kidnapping for ransom, extortion, and protection money rackets are commonly used to raise funds. The Indian Mujahideen (IM) financed its operations and bombings through ransom money. Similarly, the Popular Front of India (PFI) has been raising funds through extortion and coercive donations collected under the guise of charity. This fusion between organised crime and terrorism is referred to as the crime-terror nexus. Criminal syndicates provide logistical support and channels for money laundering, while terrorists supply manpower and protection. Such cooperation strengthens both networks and makes enforcement far more difficult.

ISI Involvement

State-sponsored terrorism is the most dangerous and sustained form of terror financing. Pakistan’s Inter-Services Intelligence (ISI) has, for decades, acted as the principal architect, financier, and facilitator of terrorism against India. While some funds come directly from the state’s secret allocations, much of the money is generated through illicit activities such as narcotics trade, arms trafficking, and counterfeit currency.

The ISI had been deeply involved in printing and circulating Fake Indian Currency Notes (FICN). These fake notes had been smuggled into India through routes such as Nepal, Bangladesh, and Gulf countries. The objective is twofold: to fund terrorism and to undermine India’s financial stability.

In some instances, even the Pakistan Embassy in New Delhi has been found transferring money to separatists and extremist elements under diplomatic cover. The ISI has thus created a vast and resilient network connecting drug traffickers, hawala operators, and criminal syndicates to ensure a steady flow of funds to terror outfits like LeT, JeM, and Hizbul Mujahideen.

Hawala Networks

The hawala system - an informal and trust-based money transfer network - remains one of the most preferred routes for terror financing. It operates outside formal banking systems, making it extremely difficult to trace.

Here, money does not physically cross borders. For example, a handler in Pakistan deposits cash with a local hawala agent and shares a unique code with the recipient in India. The hawala agent in Pakistan then informs his counterpart in India, who hands over the equivalent amount to the intended recipient after verifying the code. The two agents later settle accounts through trade manipulations, cash couriers, or overseas remittances.

Groups like LeT, JeM, and IM have long relied on this channel to fund their networks. Many hawala agents, motivated by profit, remain unaware that they are facilitating terrorism.

Barter Trade Misuse

The Srinagar-Muzaffarabad barter trade, launched on 21 October 2008 as a Confidence-Building Measure between India and Pakistan, allowed the exchange of 21 listed items without any monetary transaction. However, terror groups like Hizbul Mujahideen and Lashkar-e-Taiba soon misused this mechanism for trade-based money laundering.

Pakistani traders under-invoiced goods sent to India, creating surplus cash in Kashmir. The excess funds were then diverted to militants. Once this exploitation came to light, the Government of India suspended the barter trade on 18 April 2019.

Wire Transfers

Terrorists also misuse formal banking channels. Small-value wire transfers, often from countries such as Italy or the UK, are sent frequently to avoid detection. These remittances are masked as personal help or charity. Though individually minor, collectively they sustain sleeper cells and local operatives. Such patterns require deep analysis and inter-agency coordination to uncover.

Misuse of NGOs and Cryptocurrency

While NGOs play a vital role in humanitarian work, some have been exploited as fronts for radicalization and terror funding. Under the banner of social service, they raise funds domestically and internationally, diverting portions for extremist causes or anti-development propaganda. Transparent accounting, international audits, and strict oversight are therefore crucial.

In recent years, cryptocurrency has emerged as a new tool for terror finance. Its decentralized and anonymous nature enables quick transfer of value across borders without banking scrutiny. Funds can move digitally from Pakistan to Nepal or Bangladesh, get converted into cash, and then be physically couriered into India. This new dimension poses major challenges for financial intelligence units and requires global cooperation for detection and control.

Terror financing today is a complex, adaptive, and global phenomenon. From the misuse of religious charities and the narcotics trade to hawala, barter trade, NGOs, and cryptocurrencies, terrorists exploit every possible loophole.To combat this, countries must strengthen financial intelligence systems, AML/CFT frameworks, and international coordination. Regulation of digital assets, vigilance over NGOs, and public awareness are equally vital.

Ultimately, choking the financial lifeline of terrorism is the surest way to weaken it. When the flow of money stops, the machinery of terror collapses.