Nepal's Hills Leasehold Forestry and Forage Development Project leases forestland to small, organized groups of rural households. Effective community management of forestland requires the capacity to exclude other potential resource claimants. Through institutional analysis of a single leasehold forest case study, we argue that exclusion by small groups is difficult, especially for the poorest of the poor. Fieldwork for this study was carried out in two stages, one in late January 2000 and the second in mid- February 2000. We recommend ensuring adequate provisions for meeting the forest product needs of the poorest within the context of community forestry as a more effective poverty alleviation and conservation strategy. In addition to community forestry-based forest access, poor farmers need a leasehold programme for farmlands that would enable food self-sufficiency.