Those who have saved money will not easily lend money to anybody. The risk factor is real. Unless risk factor disappears, interest-free economy can not become a reality. Hence the need for the agency that is ready to give interest-free loans to the citizens and entrepreneurs. This is an apprehension and counter-argument of those who appreciate competition.
State agency is a standing arrangement to catalyse private transactions without interest.
The risk factor mentioned above can be eliminated by the legislation which we know as deposit and credit insurance scheme all over the world. The opportunity to coerce a situation for any amount akin to interest by private savers is eliminated when state agency is readily available. State as a standing agency for interest-free loans is not a monopoly in economic calculus. Monopoly tries to earn income which is generally more than the income in the competitive market economy. The state agency in this regard does not earn any income by lending money for business or personal purposes.