What is the purpose of interest? What is the purpose of interest? Why do most economies permit the charging of interest? Could an economy function without interest at all, or is interest necessary for an economy to function?
Interest is a key mechanism to ensure that resources are properly allocated within an economy. There are lots of uses to which money can be put: consuming goods, building highways, constructing a new factory, investing to develop a new drug, etc. Just like goods, the allocation of money is governed by the price system—where the interest rate is the price (because the interest rate is how much you have to pay to get access to money). If the price is too low (i.e. if there is no interest) then few people will be willing to lend money and valuable investments (in, for example, infrastructure or new business ventures) will not take place because the funds aren't available to pay for them. A positive interest rate ensures that people with money they don't need right now have an incentive to lend it to people with valuable projects to fund.

We know that it is possible for economies to function without interest, though, because the charging/payment of interest is prohibited by Sharia law, giving rise to so-called Islamic banking.