The Big Read: Terrorism on a shoestring

Nigeria's military says it has broken up an "intelligence cell" of the Islamic insurgency group Boko Haram and arrested its leader, who is alleged to have taken part in the infamous abduction of more than 200 teenaged girls in April.

The military said the cell was headed by a northern Nigerian businessman, Babuji Ya'ari, "who participated actively in the abduction of the schoolgirls in Chibok" and took part in other terrorist attacks.

Ya'ari is also a member of a civilian youth militia group that works alongside the military and he is alleged to have used this position - and his business as a children's tricycle dealer - as cover for his collaboration with the militants.

The development has sharpened the focus on how Boko Haram has managed to grow so quickly despite efforts by Nigeria and the US to cut off its funding.

When the US imposed sanctions on Boko Haram in June 2012 the group's leader, Abubakar Shekau, dismissed the move as an empty gesture.

Two years later, Shekau's scepticism appears well founded: his Islamic terrorist group is now the biggest security threat to Africa's top oil producer, is richer than ever, and more violent, and its abductions of women and children, and daily killings, continue with impunity.

An investigation into how Boko Haram finances its activities has revealed that it uses hard-to-track human couriers to move cash, relies on local funding sources and engages in only limited financial relationships with other extremist groups. It also has reaped millions from high-profile kidnappings.

"Our suspicions are that they are surviving on very lucrative criminal activities that involve kidnappings," US Assistant Secretary of State for African Affairs Linda Thomas-Greenfield said.

Until now, US officials have refused to discuss Boko Haram's financing in such detail.

The US has stepped up cooperation with Nigeria to gather intelligence on Boko Haram. But the group's lack of international financial ties limits the measures the US can use to undermine it, such as financial sanctions.

To fund its murderous network, Boko Haram primarily uses couriers to move cash inside Nigeria and across its porous borders.

The Treasury Department said that the US has seen evidence that Boko Haram has received financial support from al-Qaeda in the Islamic Magreb, an offshoot of the jihadist group founded by Osama bin Laden.

But that support "pales in comparison to the resources it gets from criminal activities," said one US official.

Boko Haram is estimated to make millions of dollars through its kidnapping and ransom operations.

In February last year, armed men on motorcycles snatched Frenchman Tanguy Moulin-Fournier, his wife and four children, and his brother, while they were on holiday near the Waza national park in Cameroon, close to the Nigerian border.

Boko Haram was paid the equivalent of about $3.15-million by French and Cameroonian negotiators for the hostages' release, according to a confidential Nigerian government report.

Some US officials estimate the group is paid as much as $1-million for the release of each abducted wealthy Nigerian.

It is widely assumed in Nigeria that Boko Haram receives support from religious sympathisers inside the country but there is little evidence to support the assertion.

Boko Haram's operations do not require great amounts of money, which means depriving it of funds is unlikely to disrupt its terror campaign.

Boko Haram had developed "a very diversified and resilient model of supporting itself," said Peter Pham, a Nigeria scholar at the Atlantic Council think-tank in Washington.

"It can essentially 'live off the land' with very modest additional resources required," he told a congressional hearing on June 11.

"We're not talking about a group that is buying sophisticated weapons of the sort that some of the jihadist groups in Syria and other places are using. We're talking AK-47s, a few rocket-propelled grenades, and bomb-making materials. It is a very low-cost operation."

That includes paying local youths a few pennies a day to track and report on Nigerian troop movements.

And much of Boko Haram's military hardware is not bought but stolen from the Nigerian army.

In February, dozens of its fighters descended on a remote military outpost in the Gwoza hills in northeastern Borno state, looting 200 mortar bombs, 50 rocket-propelled grenades and hundreds of rounds of ammunition.

US officials acknowledge that the weapons that have served Washington so well in its financial warfare against other terrorist groups are proving less effective against the makeshift Boko Haram.

"My sense is that the tools we have are not particularly well tailored to the way that Boko Haram is financing itself," a US defence official said.