India has been finding a lot more counterfeit currency lately, especially in Kashmir. It's apparently coming from Islamic terrorists, and has been tracked back to Pakistan. There, with government help (in getting the special paper, inks and printing equipment needed to produce convincing counterfeit Indian currency), the fake rupees are produced. Pakistan denies everything, but over $10 million worth of the bogus rupees has been detected so far, and the stuff is sometimes found on Islamic terrorists killed or captured while trying to cross from Pakistan into Indian Kashmir.
This sort of thing is nothing new. Terrorists always need money, and the global Islamist terror movement is no different in this regard, from any other organization. Traditionally, terrorists have a variety of ways of securing funds. Subsidies from foreign governments are always popular. Although the collapse of the Soviet Union has dried up a lot of covert state subsidies to terrorists, there are still groups in Latin America and Africa that receive some money from foreign governments interesting in destabilizing their neighbors. For example, Pakistan regularly accuses India of financing Baluch and other rebel groups, which the Indians deny. At the same time, India claims that Pakistan finances Kashmiri and Islamist groups. Iran, Syria and Libya have long been accused with subsidizing Islamic terrorists.
Money can also be provided by sympathetic individuals abroad, such as NORAID support to the Irish Republican Army or various Islamic "charities" funding of Islamist groups. Since the onset of the "Global War on Terrorism," however, most governments have take steps to block private contributions. This does not mean that various insurgencies are left without funds. There are alternative sources of money.
The terrorists in Kashmir have lost access to most conventional sources of funding. Pakistan is more broke than usual, so the government is not providing much cash. Private donors inside Pakistan have become less generous, because terror groups active in Kashmir have been found to be sponsoring terror attacks inside Pakistan. Then there's the international effort to shut down terrorist fund raising among expatriates, and interrupt transfers of money to the terrorists.
There are other sources still available. Revolutionary "taxation" is used in Kashmir. The terrorists impose "taxes" on the local populace. This can be very lucrative, especially if the local people support the insurgents. But it can also turn off the people, and be counter-productive. That's what has happened in Kashmir.
While some groups try robbery, taking down banks, armored cars, and so forth, this is actually not a reliable source of funds. After a couple of heists, the security forces begin "hardening" potential targets, making them much more difficult to rob.
Then there's is counterfeiting. In Iraq, for example, counterfeiting gangs have been busted with some regularity. Counterfeiters were particularly active in late-2003, when the Coalition Provisional Authority introduced a new currency. At the time Iraqi exile leader Ahmad Chalabi was charged with involvement in one scam, but was not prosecuted. In a recent anti-terrorist sweep about $100,000 in bogus dinars were found, and there are probably lots more where they came from.
Advances in reproduction technology in recent decades have made counterfeiting a lot easier. As a result, many countries have been expanding their anti-counterfeiting laws to permit investigations of "suspicious" purchases of certain products, so that anti-terrorist police agencies can bust someone suspected of terrorist ties if he's been buying equipment or software that could be used for counterfeiting. In Sweden, such a bust occurred when an Arab resident of the country with ties to a known terrorist financing group was discovered making extensive purchases of reproduction equipment that could be used to counterfeit money or passports. But in Pakistan, the government supports the terrorists, and that makes it easier for the terrorists to make usable counterfeit currency.