Pencil Finance Launches $1 Million Blockchain-Powered Student Loan Initiative in Southeast Asia

Solution Provider

Decentralized lending startup Pencil Finance announced on Wednesday the deployment of $1 million in on-chain capital for student loans, targeting borrowers in the Philippines and Indonesia.

Structure and Mechanism

The initiative utilizes smart contracts on EDU Chain, a Layer-3 blockchain built on Arbitrum Orbit.

• Funding Allocation: The $1 million is divided into a $750,000 senior tranche (fixed 15% annual yield) and a $250,000 junior tranche (variable returns, first-loss risk).
• Partnership: Funds were initially provided by Animoca Brands, Open Campus (a decentralized education DAO), and NewCampus. Repayments are guaranteed by ErudiFi, a tuition financing provider with experience in the target markets.
• Process: On-chain funds are converted to local currencies by education partners, distributed for tuition, and later repaid with interest back to Pencil Finance investors via the platform. Loan disbursement and repayment are handled on-chain, though borrower evaluation remains centralized.

Broader Impact and Future Vision

Pencil Finance aims to democratize access to affordable education financing in emerging markets. Co-founder Frank Li highlighted the stark contrast between the Philippines’ historically accessible government-backed loans (5%, discontinued in 2021-22) and the high-interest rates charged by private lenders (30% to over 100% APY). ErudiFi currently offers loans at rates effectively around 25.34% APR – significantly higher than comparable options in the US (fixed ~6.53% federally) and vastly exceeding even Asia’s historically government-supported programs.

Bitskwela CEO Jiro Reyes noted approval for ErudiFi’s student loan offerings, but emphasized the novelty of the on-chain model. Animoca Brands’ Executive Chairman Yat Sui underscored the sector’s potential, comparing student loans to government bonds for tokenization, stating that just 10% of a $3.3 trillion global market could "roughly quadruple the current TVL of all of the world’s blockchains." Pencil Finance aims to transition to a DAO governance model, distributing revenues from the $PEN token.

Key Challenges in Target Markets

Pencil Finance highlights systemic barriers in Southeast Asia: capable students often lack credit history, institutional pathways, and collateral. The solution offers manageable monthly repayment plans through ErudiFi, helping students balance studies with work and avoid predatory borrowing. However, concerns persist regarding investor yield – ErudiFi’s existing service fees and loan interest rates meant even subsidized loans typically yield positive returns for Pencil’s platform, potentially reflecting underlying market inefficiencies or information asymmetries.

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