Tracing the Financial Infrastructure of Islamic-Terror Financing in India

Understanding how Islamic extremist organisations generate, move and deploy funds is critical to disrupting terror operations in India. According to the Financial Action Task Force (FATF) and Indian enforcement agencies, the financing of jihadist and Islamist terror groups active in and against India stems from a mix of foreign state-aid, diaspora collections, abuse of charitable fronts, digital financial innovation and domestic illicit revenue streams.

Key Funding Channels for Islamist Terror Groups

A recent FATF Mutual Evaluation Report identifies multiple channels by which terrorist financing (TF) occurs in India: external state-sponsored flows, organised crime and extortion, abuse of non-profit organisations, virtual assets and digital wallets, and legitimate-looking business fronts.

State Sponsorship & Cross-border Support

The FATF report notes for the first time explicitly that certain terrorist organisations “have been and continue to receive financial and other forms of support from several national governments”. In the context of Islamist terrorism targeting India, the Inter‑Services Intelligence (ISI) of Pakistan is widely cited as a major patron of organisations such as Lashkar‑e‑Taiba (LeT) and Jaish‑e‑Mohammed (JeM). For example, LeT is reported to receive material, logistical and financial assistance from Pakistan, and to mobilise funds via its fronts and through the Pakistani diaspora in the Gulf and UK. The Vivekananda International Foundation notes that ISI-backed Islamist networks generate funds via narcotics and similar routes, often in the million-dollar range.

Charitable Fronts and NGO Abuse

Islamist terror groups often operate through ostensibly charitable organisations to collect or launder money. The dossier on LeT describes its front organisations such as Jamaat‑ud‑Dawa (JuD) and Falah‑e‑Insaniyat Foundation (FIF) as key fundraising platforms, with JuD operating schools, hospitals and charities, while channeling funds into militant operations. Indian enforcement action in Haryana found that a mosque in Palwal allegedly received Rs 70 lakh via hawala from FIF, a front of LeT.

Diaspora, Gulf Channels & Hawala Networks

Fund-raising by Islamist terror groups also heavily draws on the overseas diaspora and Gulf-based communities. As early as the 2000s, LeT accepted donations via Pakistani and Kashmiri business networks in the Persian Gulf and Britain. Investigative agencies recently uncovered that the proxy group The Resistance Front (TRF), linked to LeT, received funding from Malaysia and Gulf countries. Hawala and informal money-transfer systems remain a prominent route for fund-flows into India.

Digital Finance, Fintech & Online Platforms

The evolution of digital payments and e-commerce has enabled Islamist terror actors to exploit low-trace transfers. The FATF flagged that jihadist actors, including those inspired by Islamic State of Iraq and the Levant (ISIL) ideology, used online payment services and VPNs to funnel funds abroad. One case study referenced a 2022 attempt at the Gorakhnath Temple where the accused transferred ₹6.69 lakh (approx USD 7,700) via PayPal to foreign accounts in support of ISIL. Also, the 2019 Pulwama attack was linked to digital procurement of a chemical component via an e-commerce platform, highlighting how operational costs are funded through online channels. For JeM, there are credible indications that the group uses Pakistani fintech platforms (e.g., EasyPaisa, SadaPay) and operates thousands of digital-wallet accounts to move funds.

Domestic Illicit Activities & Legitimate Cover Businesses

While foreign inflows dominate Islamist terror funding, domestic revenue sources play a supplementary but significant role. Unlawful activities such as extortion, bogus charitable collections, front businesses and the misuse of nonprofit sectors are cited in the 2024 FATF Mutual Evaluation as sources of terrorist finance in India. In regions such as Jammu & Kashmir and north-east India, various Islamist and separatist-linked networks rely on counterfeit currency, drug trafficking and hawala conduits to raise capital.

Organisations and Proven Entities

Here are some of the better-documented Islamist terror-financing entities and cases:

• LeT / JuD and FIF: LeT is formally proscribed by India, the United States and United Nations; its front JuD runs social-welfare and charitable programmes while channeling funds to militant operations. Amit investigative dossier identify the ISI as patron, and FIF as a funding conduit.
• JeM: The organisation led by Masood Azhar is blamed for the Pulwama attack (2019) and other strikes. Recent analysts estimate JeM uses digital wallet infrastructure to raise USD 2.8-3.2 million annually.
• TRF (proxy of LeT): The National Investigation Agency (NIA) has traced funding flows to TRF from Malaysia and Gulf countries, underscoring the ongoing global funding network for Islamist terror in India.

Why This Matters for India’s Security and Economy

The inflows of funds into Islamist terror networks undermine India’s internal security, fuel violent radicalisation and enable cross-border violent campaigns. Moreover, when these funds exploit the financial and non-profit ecosystems, they degrade the credibility of NGOs, charitable giving and fintech/online payment services. The FATF observes that as India’s economy and digital finance expand, vulnerabilities in online transfers and non-financial sectors must be addressed. Cutting off funding is therefore essential to dismantling terror-capable networks, not just disrupting individual plots.

Outlook and the Path Ahead

Combatting Islamist terror financing in India will require a multi-pronged strategy: strong international cooperation (especially regarding state sponsorship and cross-border flows), enhanced regulation of non-profits and fintech/digital platforms, rigorous asset-freezing and prosecution of financiers, and sustained domestic surveillance of informal finance routes. The FATF evaluation of India in 2024 acknowledges significant progress but emphasises remaining gaps in prosecution, asset recovery and regulation of non-financial sectors. In the evolving digital era, Islamist terror financing adapts rapidly so India’s regulatory and enforcement mechanisms must likewise evolve.

In summary, the financing of Islamic extremist terrorism targeting India is sustained by a complex ecosystem involving state-backed flows, diaspora fundraising, NGO fronts, digital wallet systems and domestic illicit revenue. With verified documented instances of funding routes and organisational conduits, the challenge moving forward will be converting intelligence, regulation and legal action into effective disruption of this financial lifeline.