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Indigenous peoples and peasant communities have long been managing tropical forests and have increasingly gained legal access to the resource base. Only recently, however, have they started to form small and medium forest enterprises (SMFEs) to add value to their timber and non-timber forest products (NTFPs). SMFEs represent a promising option for poverty reduction and forest conservation through sustainable forest management. Their development into economically viable businesses requires an enabling environment, in terms of laws and policies that promote legal access to the resource base, provide incentives for sound forest management, support increased value adding, and promote the formation of human, social, physical and financial capital for sustainable production of timber and NTFPs. This paper argues that there

are still significant challenges to the development of viable SMFEs and that government and non-governmental agencies, as well as the SMFEs themselves and their business partners, have important roles to play in the process.