Abstract
In the last four years (2008-2011), Islamic bank assets in Central Java had an average growth of 49.98 %. However, the challenge the Sharia Bank today has to face despite its improving performance is still not optimal in the application of Sharia principles at the operational level in Central Java Islamic Bank in its roles as a collector and distributor of public funds institution. This research is aimed at identifying the application of Sharia principles in Islamic Banks in Central Java and the effects on the Islamic banks performance and the employees’ welfare. The research respondents were the employees of Islamic banks in four cities, as many as 180 respondents. The data were collected by using questionnaires and interviews. The data analysis used partial least square (PLS) and SPSS for windows 12.00 version as well. The results showed that the application of Sharia principles affected the performance of Islamic Banks in Central Java. The better the application of Sharia principles in Islamic Banks in Central Java, the better the performance of Islamic banks in Central Java would be. The improved performance of Islamic Banks in Central Java affected the employees’ welfare to be positive and significant. The Islamic Banks’ performance gave impact on employment availability. The Islamic banking institutions in Central Java have applied the principles/values of Sharia in carrying out Islamic banking institutions. This proved by the existence of the application of Sharia values in the implementation of contract/agreement between depositors as stated in Act No.10/1989 Article 1, paragraph 13 and article 1, paragraph 13 of Act No.21/2008. The results of this study prove that these provisions have been
implemented by Islamic Banks in Central Java.

Key words: Islamic Banks, Sharia Principles, Islamic Bank Performance, Employees’ Welfare, Maqashid Syari’ah