This article analyses the Peruvian government's quest to formalize small-scale mining in the Amazon as a political process which shows how state governance problems are reproduced in the margins of the state. It asks why the central state is unable to govern mining activities in the Madre de Dios region, and examines how small-scale miners have reacted to state attempts to formalize their activities. The author argues that, through political agency and the reproduction of ‘hybrid’ formal and informal institutions, small-scale miners have learned to contest, reinterpret and build alternatives to central state governance. The article contributes to the literature on development policies by showing how difficulties in implementing regulatory policies may be analysed as governance problems, particularly in regions like the Amazon, where the state apparatus is not well established.