Interest is known as Riba in Islam. Riba has been strictly and openly prohibited in Islam. That is why Muslim scholars are against the modern banking system around the world. Interest is basically fixed payment which is interest. To charge this fixed amount from a person who can not meet his essential consumption requirement is exploitative according to Islam.
There are a number of alternatives available in Islam for Riba.
The first alternative is Murabaha. It is a kind of sale, where the seller mentions the cost incurred on a good or service and sells it to another person by adding profit or mark-up, and the whole situation is known to the buyer. It is kind of Riba-free banking that is used in asset financing, property, microfinance etc.
In Short Islam is a complete way of living. It has everything outlined for its followers. In order to known more about Interest free banking, see this link.