You make the assumption that all wealth is represented by money, but money is just the medium of exchange, and it can be reused. For example, in a world where there is only $100, a farmer borrows the $100 and has to pay back $105. You are wondering how the farmer pays back the $105 when there is only $100 in the world. Well, it's easy. He sells a harvest and gets $21 for it and pays back $20 plus $1 interest, and then he does that 4 more times.

Ultimately, the ability to pay interest requires a growing economy, but not a growing money supply.