Funds generated through community forestry offer crucial and significant resources for rural in Nepal. This study examines forestry funds in 100 communities in three districts to assess how large they are and how they are utilized. The study finds that the income from community funds increases local development resources by about 25%. This income is invested in schools, temples, roads, and water reservoirs, which bodes well for rural development. However, there are some critical problems with the 'pro-poor programme’, an effort to reduce poverty through the resources generated from community forestry. The study finds that timber is subsidized and the subsidies accrue mainly to the non-poor. Furthermore, income spent on loans tends to favor the non-poor. Overall some 74% of the benefits of community forestry funds accrue to the non-poor while 26% accrue to the poor in rural communities in Nepal. The study concludes that two actions may increase the benefits accruing to the poor: a) allowing all households to have an equal share in timber that is harvested; and b) increasing the participation of poor and less advantaged members in the executive committees that manage forestry funds. [SANDEE]