You're assuming the alternative to lending at interest is nothing rather than something.
A loan really does three things.
First, it creates new money. When you borrow money from a creditor, notice that they generally don't mail you a bundle of dollar bills. What really happens is that they credit your account with the loan amount, and at the same time create a loan account with a negative balance which is what you owe them. These cancel out, which causes their books to balance even though it is simultaneously the case that the amount of cash in their vault hasn't changed and the amount of money in your bank account has. This is why increased lending causes price inflation.
Second, it causes there to be more money in the hands of borrowers. This is where you get economic growth; people have more money to spend.
And third, it causes the borrower to owe the lender interest.
Notice that the first two are the only ones that are actually good for anything. Even the inflation is generally a cost, but in moderate amounts it's beneficial because it counteracts the natural deflationary tendencies of a growing economy. All you really want is for people to have money to spend.
But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.