We would like to cite a not yet finished masters thesis in a project proposal, because the topic of the thesis is completely on point with the call. It shows that we are already actively working on the problem.
What is a good way to cite this?
In a proposal, you will often have to explain your previous experiences with issues related to what you are proposing. It is not uncommon to show some unpublished data there. If the data is the result of a student's work, you could simply mention that in the proposal text, a figure caption or the like, including the student's name. Then you would already provide all the relevant information this way and could decide to omit a separate citation in your list of references. I see this solution both in my own proposals as well as in proposals of others that I assessed in the past.
You could obviously also do both, include the mention in the text as well as the citation, and use e.g. the citation style @henning suggests.
In APA Style:
Doe, Jane. I. (2021). Embedded computing in underwater basket weaving: A case for sustainable textiles. Manuscript in preparation.
Other styles might have similar formats.
Depending on the state of the work to be cited, you can add to a normal citation either "work in progress" or "private communication". I'm not as certain about the latter, but might consider it for a work in the early stages, with "in progress" for one in the later stages.
Perhaps "in progress" is best as it implies that the work will appear.
You could add various qualifiers as appropriate: "expected completion month, year.