In the South Punjab city of Bawalpaur, where militant groups are particularly strong, residents say leaders of the militant group Jaish-e-Muhammad have taken over madrassas in an attempt to convert young students to their group.
Residents have been threatened for sharing any information about the militant groups, and at least two journalists working on a story about the groups have been targeted.
In Bawalpaur, graffiti on the walls declares that "the heroes are not film stars, but mujahedeen," or holy fighters, according to one resident. "Break the bones of the infidels," other graffiti urges.
In Dera Ghazi Khan the main madrassa teaches 550 students, including 200 girls. Most of them will join mosques and become prayer leaders, claimed the leader of the mosque. He admits that only parents who can't afford better education send their children there.
"Those students who cannot afford conventional education, therefore their parents send them here to get Islamic religious education," the leader says. Asked where the money for the madrassa comes from, he declined to give specifics, saying only, "The expenses are taken care by pious people."
U.S. officials believe that the funding comes mainly from Arab states, especially Saudi Arabia, which shares the same school of Islam as the southern Punjab madrassahs.
But they admit that despite efforts, they have not been able to convince the Saudis that their money is going to help fund terrorism, something that Saudi officials vehemently deny.
Regardless of the sources, officials in both Lahore and southern Punjab admit they are facing an emboldened enemy that, right now, has the upper hand.
"The money is pouring in. The money is there. The weapons are there. The philosophy is there," one senior police officer in southern Punjab said, wishing to remain anonymous. "This is our problem. And we are not concentrating."