Borrow 1 BTC, and pay back 1.1BTC can work over any time.
Where is that 0.1 BTC coming from?
In the fiat world, the way to make this happen is issue more and more money to pay back the previous interest, but in bitcoin world, the total number of money supply is fixed, paying back more than you borrowed simply means that interest must come from someone else's pocket
Interest is a perfectly valid way of making money with a currency!
The 0.1btc comes from the person who borrowed it, just like in the old days of banking!