In the Netherlands, interest is called rent. That is exactly what interest is. Someone lends you capital and expects rent on the use of that capital. The longer the period they lend you that capital, the more demand there is for it, or the riskier it is to lend it to you, the higher the rent. The same factors that effect any other property that is lent.
This is interest where the capital is lent out for more than one period, and the interest is not paid in the first period but collated to be paid at a later period.
This means in the second period, there is the interest to pay on the original capital still lent, but also the interest on the interest also lent out.
Even if you could outlaw it, savers would take their money out of banks and invest in shares/property/gold with implicit compounding.
Put simply if you want to borrow someone's property long term like a car, the person/company who owns that car will expect some compensation. They want compensation for not having the use of the car, and the risk of not getting it back. Possibly also for the revenue they could have otherwise generated with the car. That's how car rental companies work, and the more of a risk you are, or the longer you want the car the more it costs. When borrowing money, the same principle applies. Charging interest on money is no worse than charging rent on any other item, especially since money is interchangeable for other items.