Kevin Williams, chief executive of the YMCA, said the idea could lead to a two-tier local voluntary and community sector.
The 'opportunity card' scheme was one proposal outlined in Youth Matters, the Youth Green Paper published on 18 July.
The cards would reward young people for volunteering or for making a contribution to society in other ways. Credits would be given that would provide discounts on a range of activities. The cards could also be 'topped up' with money by young people and their parents.
Although the YMCA has welcomed the paper's intentions to improve choice and facilities for young people, it also plans to highlight what it sees as the shortcomings of the proposal in its response to the consultation, which closes on 4 November.
As a large organisation, the YMCA would probably sign up to a reward card scheme, Williams said. "But there is a real risk that smaller groups would be excluded," he added.
He warned that smaller groups that do not have the ability to set up the infrastructure required to take part in the scheme would find it much harder to compete for young volunteers against those that do join.
Such a scheme could be the "straw that breaks the camel's back" for such groups, which are already battling with added costs for health and safety, and for security checks.
Williams added: "Increasing regulation would be the kiss of death to small groups."