Abstract:

Islamic principles which lead ethics and morals and ultimately on well-being is assessed in accordance with Agenda of Sustainable Development Goals (SDGs) which is not only concerning on commercial aspects but also social aspects and environments. Islamic banking as one of the parts of Islamic economic should carry out its operational activities based on those principles. Then, this study aims to examine and analyse the role of Islamic banking through its financing channelled on quality of life measured by Human Development Index (HDI) around the provinces in Java Islands, Indonesia. Panel data regression using random effects model (REM) was used to data analysis technique. The results showed that Islamic bank financing consisting by working capital, investment and consumption financing were insignificant effects on HDI. It indicated that Islamic banking was not yet optimal to encourage the improvement of quality of life in the provinces in Java Islands. However, dummy SDGs showed significant effects on HDI or in other word the Agenda of SDGs which has been started in 2015 triggering on the improving quality of life amounts to 0.029 point. The results provide an insightful information which Islamic banking should encourage its financing based on social values or impact investments such as education, health, rural communities, agriculture, nutrition and renewable energies to support the improvement of HDI.