ISLAMIC FINANCE AND THE SDGS IN DUAL SYSTEMS: A SELECTIVE-CHANNELS VIEW

This study examines whether Islamic finance advances the Sustainable Development Goals (SDGs) uniformly or through selective channels across economies with dual financial systems. Using a panel of 20 economies over the period 2014–2024, associations with the SDGs are estimated using Method of Moments Quantile Regression (MMQR), which captures effects across the full conditional distribution. Three estimators robust to cross-sectional dependence—Driscoll–Kraay, feasible generalized least squares (FGLS), and panelcorrected standard errors (PCSE)—provide additional robustness checks, while system generalized method of moments (system GMM) serves as an endogeneity diagnostic. Islamic banking is positively and robustly associated with industry, innovation and infrastructure (SDG 9; b = 0.593, p < 0.01), and moderately associated with poverty reduction (SDG 1; b = 0.205) and reduced inequality (SDG 10; b = 0.405), while its associations with affordable and clean energy (SDG 7) and decent work and economic growth (SDG 8) require further empirical examination. The association with SDG 9 is strongest among the lowest-performing economies, declining monotonically from the 10th quantile (0.637) to the 90th quantile (0.546), thereby indicating convergence potential. These results support a selective-channels interpretation: Islamic finance contributes to sustainable development primarily through real-sector and asset-backed financing channels rather than uniformly across the entire SDG agenda. The findings have direct implications for Uzbekistan, where the legislative framework for introducing Islamic banking entered into force on 29 June 2026.