Changes of conservation initiatives aim at balancing sustainability of forest resources and rural livelihoods. Little is known on influence of conservation to livelihoods. This study assessed people’s livelihood assets and the way conservation institutions modify access to the assets, and its implications to poverty. Both qualitative and quantitative data were collected. Ninety seven households were randomly selected from three villages. Content analysis was used to analyze qualitative data while SPSS computer software was used for quantitative data analysis. There was reduced access to livelihood assets especially natural assets attributable to conservation initiative. Respondents (60%) felt that they pay for conservation more than they benefit from the conservation. Household income sources were: agriculture (54.1%), environmental income (5.6%) and non-farm and off-farms contributed (40.3%). The total household income increased with increase in agricultural crop sales (especially finger millets) and the relationship was significant (P<0.01). Majority (75%) perceived that climate change may impact smallholders’ livelihoods directly through a change in rainfall and temperatures, but 90% observed that mitigation such as REDD initiatives may also lead to serious challenges to smallholders due to restrictions on access to land. Restrictions attributable to conservations (environmental income), increased income inequality. The inequality as measured by the Gini coefficient increased significantly without environmental income in Mughunga (0.1), Ngimu (0.01) and Pohama (0.01). Generally, without environmental income, the overall Gini coefficient decreased to 0.08 units. Community’s perception on increased conservation initiative e.g. towards REDD for poverty reduction was negative. Under current conservation initiative the wildlife conflicts were reported high (88%), among them 58% of the respondents attributed the extent of conflicts due to conservation. Pressure on land around Mogori Community Based Forest Management increased due to population growth and the demand for cultivating drought resistant crops (e.g. finger millets). REDD introduction, should be handled in a broader context in order to try avoiding adverse effects on smallholders’ access to resources and, hence, to their livelihoods.