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Interest rates are high in the rural credit markets of poor countries. Yet it is often said that the rates of return on capital invested in traditional inputs is low. Under these conditions it would seem uneconomie for farmers to borrow; ir funds ate needed, farmers should sell assets. Ir the expected costs are greater than the expeeted benefits, farmers will not have as muela ineentive to borrow money. Indeed, the evidenee suggests that in poor eountries most farmers ate free of debt. But there is great diversity; some farmers do have high marginal returns on capital; some borrow at low rates; seasonality influenees the debt strueture, as does the level of wealth; and transaetions eosts may make borrowing cheaper than selling assets. Introdueing uneertainty reduces the chances that farmers will borrow.