The government should ask the European Commission to allow it to extend the duration of community investment tax relief if it wants to grow the social investment sector, according to several social investment experts.
CITR, which allows investors in community development finance institutions to reclaim up to 25 per cent of their investment over five years, was made possible by a state aid exemption by the European Commission, which will expire in 2012.
Several social investment experts have told Third Sector that the government must commit itself in the Budget on 23 March to ask for the exemption to be extended so that it has enough time to go through the procedures before the existing exemption runs out.
Bernie Morgan, chief executive of the Community Development Finance Association, the umbrella body for CDFIs, said CITR must be extended.
"The CDFI sector is already under pressure," she said. "It's critical for the future of the sector. We're hopeful of an announcement about an extension in the budget."
CDFIs lend to social enterprises and individuals in deprived areas, and have raised about £60m through CITR.
Morgan said the tax relief had, however, been much less successful than predicted in its first 10 years because the CDFI sector was "not investment-ready" when it was introduced, and also because the initial rules were far too complicated.
"There is still a significant barrier in the speed with which you have to get money out of the door," she said. "If that was relaxed, CDFIs would be able to access a lot more cash under CITR."
Mike Baker, chief executive of CDFI the Social Enterprise Loan Fund, said CITR was crucial to his organisation's business model.
"We're lending to pre-schools and community centres," he said. "We can't ask these organisations to pay high interest rates. CITR makes borrowing affordable for these organisations."
He said few CDFIs were able to operate sustainably, and have lost many traditional sources of funding, such as regional development agencies.
"There needs to be some support for the sector if we are to keep lending at the current rate," he said.
Sir Ronald Cohen, who pushed for the foundation of the Big Society Bank, was one of the original proponents of CITR when he chaired the social investment taskforce 10 years ago.
"It's important for government to build some incentives for social investors into the next Budget," Cohen told Third Sector. "It's important that they look at community investment tax relief. I hope that they extend and simplify it."
A spokesman for the department for Business, Innovation and Skills, which has responsibility for CITR, said the government was committed to considering future of the tax relief, but no decisions had yet been taken.