The government ordered a mandatory evacuation of the roughly 10,000 people on Ambae in August due to volcanic activity.
Oxfam's Pacific Cash and Livelihoods Lead Sandra Uwantege Hart said many are living in temporary shelters on Maewo and Santo, and it is not clear when they will be permitted to return home.
She said giving Ambaeans cash to spend locally will help them meet the needs they have.
"Oxfam has launched a Cash Transfer Programme to support evaucees who are located both on Santo and on Maewo. And the intention of that programme is for Oxfam to help people receive money, provide them with financial assistance so they can purchase local goods from local markets to meet their priority needs."
Cash Transfer Programmes (CTP) involve direct payments to victims of humanitarian crises, empowering the affected population to decide on their own how to meet their needs using available local resources.
Ms Hart said the CTP programme on Santo is being unrolled now, with Oxfam conducting registration for evacuees to be provided with cash payments this week.
She said there are between 7,000 and 7,400 Ambaens - or 64 percent of the population of Ambae - now living on Santo.
In Maewo, where approximately 2,500 Ambaeans are living, Oxfam will begin an assessment next week to evaluate the market.
"It's important that we're not using a one-size-fits-all approach, and that we're looking at this type of humanitarian assistance and adapting it in the context it occurs. So in the case of Maewo, that market assessment will allow us to design a cash transfer or voucher programme that is best adapted to the market environment on Maewo.
"As soon as we complete the assessment, we will design a programme and roll it out as soon as possible."
Ms Hart said New Zealand's Ministry of Foreign Affairs and Trade is providing Oxfam with most of the funding, which will translate into support for more than 80 percent of the people who have been evacuated from Ambae.