Pencil Finance Deploys $1M for Student Loans in Philippines, Indonesia

Pencil Finance, a decentralized lending startup, has deployed $1 million in on-chain capital to fund student loans in the Philippines and Indonesia. This initiative is part of a broader effort to expand education financing in emerging markets. The capital is divided into two tranches: a $750,000 senior tranche offering a fixed 15% annual yield and a $250,000 junior tranche with variable returns and first-loss risk. The protocol operates via smart contracts on EDU Chain, a Layer-3 blockchain built on Arbitrum Orbit, specifically designed for educational applications.

The funds are initially provided by Animoca Brands, Open Campus—a DAO focused on decentralized education—and NewCampus, a business upskilling platform. Once pooled, the on-chain funds are distributed to education partners, who convert them into local fiat currencies. ErudiFi, a tuition financing provider with eight years of experience in the Philippines and Indonesia, receives the capital and holds it in its treasury for student loans. Pencil Finance's protocol decentralizes capital flow, repayments, and governance over time, while borrower evaluation remains centralized.

Lending, yield distribution, and transaction tracking are managed via smart contracts on-chain. However, borrower vetting still requires due diligence by the core team. The company plans to transition governance to $PEN token holders through a DAO model. This initiative marks a first-of-its-kind effort in the education sector, positioning education lending as a new vertical in the broader category of tokenized real-world assets.

When students apply for loans through ErudiFi, the company pays tuition directly to schools. Students then repay ErudiFi in manageable monthly installments ranging from three to twelve months, helping them balance studies with part-time work and avoid predatory loans. As students make repayments, ErudiFi returns the funds, along with interest, through the Pencil Finance platform. These returns then generate yield for the original on-chain investors.

Pencil Finance co-founder Frank Li highlighted the disparity in education financing between developed and emerging markets. He noted that in the U.S., many students rely on loans to finish their degrees, and some turn down offers from their dream schools due to the high debt burden. In emerging markets, capable students are often locked out due to lack of credit history, collateral, and institutional pathways. When financing is available, interest rates can reach upwards of 20% APY, driven by the inability of global liquidity to flow into these markets.

Policy researchers have argued that simply offering microcredit, particularly at elevated interest rates, may not be sufficient to drive meaningful economic outcomes for borrowers. In the Philippines, a government-backed loan program once offered families access to student financing at 5%, but this initiative was phased out after the 2021–22 school year. Since then, students have largely relied on private lenders, microfinance firms, or informal credit providers, where annual interest rates can run from 30% to more than 100%.

Pencil Finance said that ErudiFi typically offers interest rates starting at 1.9% per month, plus a one-time service fee of 4.5% to 10%. Even though roughly one-third of schools in its network subsidize interest payments, allowing some students to borrow at 0%, the standard monthly rate compounds to an effective annual rate of approximately 25.34%, roughly four times higher than in the U.S. While the demand for student loans in the Philippines is consistent and growing, the high borrowing costs remain a barrier for students.

On-chain student loans could offer a more transparent alternative, but they are entering a market where borrowing costs remain high. Filling these gaps can put a product like Pencil Finance strongly on the map, according to Jiro Reyes, CEO of Filipino-led edutech platform Bitskwela. The launch comes amid renewed interest in tokenized real-world assets, which include government bonds, credit products, and other types of asset-backed financing. The student loan market is valued at approximately $3.3 trillion, and if just 10% of the value of student loans were to be tokenized, that would roughly quadruple the current total value locked on-chain for all blockchains.