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Rural and community development policies in Nepal of the last six decades are reviewed in this paper examining them through the lenses of institution building at the grassroots level. Despite providing relief in the short term, many of the initial rural development initiatives failed to make an impact and often disappeared without creating any local institutions as soon as donor funding came to an end. However, since 1980s, there has been a growing emphasis on utilising Community-Based Organizations (CBO) as the vehicle for community development. As a result, CBOs have become ubiquitous. Despite having greater roles in local community development, they have received relatively little attention in the policy and research arena. This paper attempts to explore their evolution, map their growth and examine their patterns of sustainability. Analysing the pathways the CBOs utilise, this paper suggests that CBOs tend to shrink in terms of membership, activities, participation and resources as they grow older. Government and development agencies involved need to focus their help in supporting CBOs to sustain themselves.