The analysis presented here argues that the problems afflicting present-day economies arise primarily from the use of interest-based banking. Analysis shows that, in contrast to the teaching of mainstream economic theory, interest as an incentive for ensuring an efficient allocation of resources simply does not, and cannot, achieve results that are in any sense comparable to those that may be achieved when profit is used for the purpose. Significant differences exist between profit and interest as motives for the efficient allocation of capital. These differences have important consequences not just on how resources are allocated, but also on how the rewards of productive activity are distributed. To make matters worse, with a few exceptions, all analysis takes place within the Keynesian or neo-Keynesian paradigm. A number of observers have already stated that Keynesian theory is flawed and thus hardly suitable to provide the basis for serious analysis. The work presented here recommends adopting a paradigm that is free of interest as an incentive for rewarding economic activity. It tries to demonstrate that resources are allocated more efficiently when profit rather than interest is used as the primary incentive to reward economic activity. Islamic finance has not been palpably successful in addressing various macroeconomic challenges. In replicating mainstream finance, it has produced debt-like structures, with income and capital guarantees that in substance make them little different from interest-bearing bonds. Thus, as a number of observers have stated, we have witnessed what appears to be a conventionalisation of Islamic finance rather than the Islamisation of conventional finance. The main flaw in the present-day economic theory is the view that interest serves as a suitable incentive for rewarding participation in production. Analysis shows, on the contrary, that interest-based finance produces a range of harmful macroeconomic effects. These include inefficiency, indebtedness, inflation, unemployment, stagnating growth, cyclical instability and an uneven distribution of wealth. As the problems mentioned above are produced by different forms of interest-based financing, it follows that they should be addressed by implementing risk sharing as the preferred method of financing over borrowing at interest on a system-wide basis. The work presented here is based on a decade of teaching economic theory, both in Canada and in Malaysia, as well as several years of research in Islamic banking and finance at IAIS Malaysia. The research presented here draws on both sources.