Decentralized Lending Startup Pencil Finance said on Wednesday that the $ 1 million in student loans on the chain, with funds addressed to borrowers in the Philippines and Indonesia as part of a broader urge to expand educational financing on emerging markets.
The initiative works by collecting funds from investors and placing in structured loan tranches through smart contracts on Edu Chain, a Layer-3-blockchain built on Arbitrum Orbit for educational applications.
Liquidity was initially provided by Animoca Brands, Open Campus – a DAO focused on decentralized education and NewCampus, a business up -skilling platform.
The protocol deals with the payment of loans and reimbursement on the chain, with capital distribution between a senior tranche of $ 750,000 that offers a fixed annual return of 15% and a $ 250,000 junior tranche with a variable return and the First-Loss risk.
Once merged, on-chains funds are distributed between educational 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 his treasury for student loans.
Pencil financing said that the protocol the capital flow, the repayments and – over time – government, while the evaluation of the borrower remains centralized.
Lending, yield distribution and transaction tracking are handled through smart contracts on the chain, although borrower transmission still required due diligence by the core team. The company is planning to switch governance to $ pen -token holders via a DAO model.
“This is unknown territory,” said Jiro Reyes, CEO of the Filipino-guided Edutech platform Bitskwela, said Decrypt.
The launch comes in the midst of renewed interest token Real-World assets, including government bonds, credit products and other species covered by assets.
“The chance is considerable to say the least.” The executive chairman of Animoca, Yat Sui, said Decrypt. “The Student Remuneration Market is appreciated at around $ 3.3 trillion. The total value on the chain for all block chains is around $ 115 billion.”
“If only 10% of the value of student loans were token, that would roughly the current TVL of all the block chains of the world four -trap,” Sui added.
Pencil financing positions educational loans as a new vertical in that broader category, one that offers both social utility and investors yield.
When students request loans via Erudifi, the company pays tuition fees directly to schools. Students then pay Erudifi back in “manageable monthly episodes” ranging from three, six, nine and 12 months of planning, so that they help a balance studies with part -time work and avoid robbery credits, “said pencil financing Decrypt.
While students make reimbursements, ‘Erudifi returns the money’, together with interest, via the Pencil Finance Platform. These returns then generate yields for the original investors in chains.
“I grew up in a country where tuition fees was very accessible-the government support meant that even students with low-income backgrounds could follow higher education without the burden of debts,” said co-founder of Pencil Finance Frank Li, Frank Li Decrypt. “So early I didn’t have a strong feeling of how student loans can be a barrier.”
Only when Li arrived in the US did he say that he realized how different things were.
“Many talented students in the US rely on loans, just to complete their diploma, and some even points off offers from their dream schools because the debt burden is too high,” he said. “Now, based in Asia, I have seen how different – and in many ways worse – the situation is in emerging markets.”
“Even capable students are locked up because they have no credit history, no collateral and no institutional path,” Li continued. “And when financing is available, interest rates can reach more than 20% APY, driven by the inability of global liquidity to flow to these markets.”
Debts
Although loans increase access to capital in the short term to capital, policy investigators have argued that the simple offering of microcredit, in particular for increased interest rates, may not be sufficient to stimulate meaningful economic results for borrowers.
Undergraduate Federal Student Loans in the US now have a fixed interest rate of 6.53%, according to figures from the Ministry of Education.
In the Philippines, a loan program once supported by the government offered access to student financing with 5%, but the initiative, introduced during the Pandemie, was reduced after the school year 2021-22.
Since then, students have largely been familiar with private lenders, microfinance companies or informal credit providers, where the annual interest rates can run from 30% to more than 100%.
Microloan rates in the country can, for example, be effective annual interest rates of more than 60% when they are issued by private lenders, according to industry facts Published by the Asian Development Bank.
Pencil financing said that Erudifi usually offers interest rates from 1.9% per month, plus a one -off service costs of 4.5% to 10%.
Although about a third of the schools in its network subsidize interest payments, so that some students can borrow by 0%, the standard monthly rate connections are up to an effective annual rate of approximately 25.34%, about four times higher than in the US
Although the demand for student loans in the Philippines is “consistent and growing”, Bitspwelas Reyes noted that the loans are “from and are managed on the chain”, which can affect how the product is observed.
Student loans in the chain can offer a more transparent alternative, but they enter a market where the loan costs remain high and have become “a barrier for students”, Reyes said.
“Filling those holes can easily put a product such as pencil financing on the map,” he added.
