tl;dr
Pencil Finance, a decentralized lending startup, has deployed $1 million in on-chain student loans targeting borrowers in the Philippines and Indonesia to expand education financing in emerging markets. Funds are pooled from investors into structured loan tranches managed by smart contracts on EDU C...
Decentralized lending startup Pencil Finance has deployed $1 million in on-chain student loans targeting borrowers in the Philippines and Indonesia, aiming to expand education financing in emerging markets. This initiative pools funds from investors into structured loan tranches managed by smart contracts on EDU Chain, a Layer-3 blockchain built on Arbitrum Orbit tailored for educational use.
Initial liquidity came from Animoca Brands, Open Campus—a DAO focused on decentralized education—and NewCampus, a business upskilling platform. The loans are disbursed and repaid on-chain, with capital split into a $750,000 senior tranche offering a fixed 15% annual yield and a $250,000 junior tranche with variable returns and taker risk. After pooling, funds go to education partners who convert them into local currency for student loans. In this case, ErudiFi, a tuition financing provider with eight years’ experience in the region, manages the treasury for these loans.
Pencil Finance’s protocol decentralizes the flow of capital, repayments, and plans to decentralize governance via its DAO model and $PEN token holders. However, borrower evaluation remains a centralized task handled by the core team, ensuring careful vetting. Lending, yield distribution, and tracking are all secured by smart contracts on-chain.
The initiative comes amid a surge of interest in tokenizing real-world assets, including credit products like student loans. With a global student loan market valued at approximately $3.3 trillion and total locked value across blockchains around $115 billion, executives see a massive opportunity to significantly expand blockchain finance by tokenizing a fraction of these loans.
Students applying through ErudiFi receive tuition payments directly sent to schools and repay loans in manageable monthly installments ranging from three to twelve months. This flexible structure aims to help students balance education and part-time work without falling victim to predatory lending. As repayments flow back to ErudiFi, funds plus interest return to Pencil Finance’s platform, generating yield for original investors.
Co-founder Frank Li shared personal insights, noting that while he grew up in a country with accessible higher education, he recognized the severe barriers students face in the U.S. and emerging markets where lack of credit history, collateral, and institutional pathways leaves many locked out. Interest rates in these regions often soar above 20% APY due to liquidity constraints.
Policy researchers caution that high-interest microloans may not always produce positive economic outcomes despite increasing short-term capital access. For context, U.S. federal undergraduate student loans carry a fixed 6.53% interest rate, whereas private lenders and microfinance firms in the Philippines charge rates exceeding 60% annually. ErudiFi typically offers 1.9% monthly interest plus service fees, amounting to an effective annual rate near 25.34%, still significantly higher than U.S. rates.
Market demand for student loans in the Philippines is steady and growing, but on-chain lending is a novel approach that may require time to gain trust. On-chain transparency offers promise but operates in a tough market where borrowing costs remain a steep barrier. As these dynamics unfold, Pencil Finance could become a notable player in democratizing access to education financing through blockchain technology.