Among developing countries, Nepal has been an enthusiastic leader in experimenting with participatory systems of forest governance. This article evaluates the state-initiated implementation of the leasehold forestry programme in Nepal, aimed at providing better livelihoods to the poorest sections of society by leasing patches of degraded forest land for a 40-year period. Using case studies in the middle hills, study was made of the interaction between leasehold forestry users and forest dependent communities that were excluded from the programme. The evaluation of local institutions and forest condition before and after implementation of the programme revealed that there is a high degree of social conflict between users and non-users, with an increase in forest degradation. Nevertheless, in some situations, user groups have developed innovative approaches to conflict resolution, leading to significant improvements in forest biodiversity and biomass levels. It was concluded that it is not enough to simply change existing legislation and put a new institution in place. The degree to which such institutions can survive and succeed in achieving their objectives will depend crucially on how well they interface with existing institutions, and the manner in which this interface evolves over time in response to the needs and expectations of local communities.
